This year, the number of equity rich properties in the United States hit a new low, while the number of properties considered to be “underwater” on their mortgages has hit a plateau. In New York, the current number of equity rich properties, or properties where the owner has paid off at least 50 percent of the property’s mortgage, is 30.7%. This indicates that the vast majority – over 70% – of properties in New York are encumbered or leveraged by mortgages of over 50% of their value. A property is generally referred to as being “underwater” when the amounts due for mortgages and liens on the property exceed their market value.
In the residential context, when a homeowner owes more on his or her mortgage than his or her home is actually worth, he or she is considered to be underwater on the mortgage. This is also known as having negative equity. Property owners who are underwater on their mortgages have a few options. To determine the best option for your situation, work with an experienced real estate attorney.
My Mortgage is Underwater. What are my Options?
Homeowners whose mortgages are underwater have a few options. These include:
- Staying in the home and continuing to pay. In some cases, it makes sense to continue to pay for a home that is underwater; This can sometimes be accomplished by a “Forbearance Agreement” where the bank agrees to temporarily suspend mortgage payments, until the owner can get back on their feet, financially.
- Modify the mortgage loan. Depending on his or her individual circumstances, it is sometimes possible for a homeowner to work with his or her lender
- to modify the mortgage. This can mean lowering the interest rate, extending the term of the mortgage (for example, creating a 40 year mortgage in lieu of a standard 30 year mortgage), and sometimes, the bank may even forgive default interest, or build that interest onto the end of the mortgage as a balloon payment. These measures are meant to make the mortgage affordable again, so the owner can stay in the home and continue making payments.
- Do a short sale. A short sale is a sale of a home to a third-party buyer for less than the homeowner currently owes. The bank may agree to accept all of the proceeds of the sale, in lieu of the amount they are actually owed. The owner will not make any money from the sale, but he will avoid having to pay the balance of the mortgage debt, or having the interest and legal fees continue to climb.This can be a way for a homeowner to escape his or her obligation to the home with minimal consequence, allowing a buyer to purchase the home for a lower price.
- A Deed In Lieu of Foreclosure. This allows an owner to simply give the home back to the bank, in lieu of paying the mortgage debt, and as a way to avoid the increased costs and stress of going through a full foreclosure, and will allow the owner to avoid the mortgage interest and legal fees to continue to mount throughout the foreclosure process. While the owner will be giving up the property, this may be preferable to a foreclosure if there is no realistic way to save the property from foreclosure.
- Declare bankruptcy. If the homeowner’s financial situation is so bad that he or she cannot even begin to meet his or her debts, bankruptcy can be a way to alleviate the pressure of an underwater mortgage. When an individual files for bankruptcy, he or she is granted an automatic stay. This prevents the mortgage lender from making collection calls while the homeowner works through the bankruptcy process. It is important to note that a Bankruptcy is unlikely to stop an ultimate foreclosure, but may allow the owner more time and opportunity to find an amicable solution with the bank.
What About Foreclosure?
Foreclosure is another option for many homeowners with negative equity in their homes. If you cannot get a loan modification or you simply do not care to keep your property, this could be the right choice for you.
Choosing foreclosure is also known as a strategic default. When a homeowner chooses to stop making his or her payments, the property goes into foreclosure and eventually will be sold at a public auction. In many foreclosure auctions, the property will be taken back by the bank. A strategic default requires more work than simply stopping mortgage payments – it can have tax implications for the homeowner and in some cases, a homeowner can face legal action from the mortgage lender. Discuss all of these possibilities with an experienced real estate attorney before you choose a strategic default.
New York Real Estate Attorneys
Avoid losing your home to foreclosure by being proactive and contacting a New York real estate attorney as soon as you can. There are strategies that you can use to stay in your home. In cases where foreclosure are inevitable, the right attorney can help avoid more dire consequences by helping you get out of the home strategically. For more information about all the strategies and options listed above, contact Menicucci villa Cilmi PLLC today to schedule your initial legal consultation with our firm.
New York Real Estate Attorney. If you have legal questions regarding Real Estate, Mortgage or are in need of a Real Estate Lawyer in Staten Island, Brooklyn or New York contact the Law Firm of Menicucci, Villa, Cilmi PLLC for a no cost case evaluation. We are a Real Estate Law Firm with offices in Staten Island, Brooklyn and New York City.
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