Short sale can help ‘underwater’ owners

Back during the real estate bust, we fell behind on our mortgage and worked with our lender to get a loan modification. The lender added the delinquent amount to the end of the mortgage. Now, almost 10 years later, we have retired and are looking to relocate to a smaller house. Although our home’s value has increased, we still are “underwater” on the mortgage due to the modification. We contacted our bank, but we were told that there was no help for our unique situation.

Your bank representative gave you bad information. Your situation is far from unique. You can wait it out or try to complete a short sale. In a short sale, your lender will agree to accept less than it is owed and will release you from the mortgage.

Your house has regained most of the value it lost when the bubble burst. In a few more years, as long as values continue to rise, you no longer will be underwater. You could stay in your home and possibly refinance or move to a new home and rent this one. However, being a landlord is not for everyone.

I think a better option would be to try for the short sale. You’ll need to list your property with a real estate agent and sign a contract with a buyer at market price. Then you apply to your lender for a short sale by filling out paperwork that is similar to the loan modification process. You’ll have to follow up consistently with the lender until the deal is approved.