You may feel free to contact me at 573-541-3994 to discuss what you may need to do
I would first recommend contacting a realtor and having them give you their opinion as to what your home is really worth, and how much it may sell for. If you purchased it in 2006, however, you may not be lucky enough for the home to be worth more than you owe.
In a declining housing market, the value of a home sometimes falls below what is owed on it. When you can no longer pay the amount owed, you have several options. You can try to hand over your deed to your first mortgage holder. But they might not accept it, since they'd still be on the hook for legal fees, taxes as well as your second mortgage. Or you may just let the house fall into foreclosure. But that should only be a last-ditch approach because it severely hurts your credit rating.
Another alternative is a short sale -- that is, a sale in which the proceeds fall short of what you owe. It can be a win-win situation for you, the lenders and the buyer (often an investor) of your house. But since you're asking lenders to accept less money than you promised to pay them, there's no guarantee that they'll go along with such a sale. And preparing for it will take considerable work on your part. The main benefit is that you avoid having a foreclosure on your credit.
First, you must prove that you really can't pay your loans -- and that the reason is new, not something that you concealed from your lenders when you originally applied for the loan.
Then you or someone else, like a real-estate agent, must find a buyer willing to purchase your house at market value. Market value can be determined through a formal appraisal (your lender may insist on one) or by an agent's comparative market analysis.
You or your agent also must figure out all the costs of selling the property. That includes the balance of both loans, accrued interest up until the day of closing, closing costs and fees, and unpaid property taxes.
You then must present the facts to your first mortgage holder, which has the top lien position and gets paid first. This isn't as simple as it may sound. What the lender wants upfront is a hardship letter from the seller, a contract between a buyer and seller and an estimated settlement statement. The lender may counteroffer and you continue to negotiate. Remember, the last thing a lender wants to do is foreclose on a home. If a lender puts the house in foreclosure, it has to clean it up, paint it, replace the carpet, list it on the market, pay a broker's commission and other closing costs as well as maintain the property while it sits waiting for a buyer.
Many lenders are not prepared and not accustomed to short sales and that can be a challenge for real estate agents and their clients. Realtors need to build a relationship with the bank on a short sale, when possible, they should meet with the loan officer and provide them with as much data as possible on the house and the market.
If your plan will bring them more money than they'd get if the house were sold at auction, they'll most likely go along with it -- and sometimes pick up some of your costs as well, like real-estate commissions and closing costs. However, it may be difficult to get your second mortgage holder to sign off on the deal because if they do, they might not be repaid what theyâ€™re owed. But they may be willing to go along with a short sale if the buyer or the first mortgage holder offers to pay them some money, especially if the amount you owe on your second mortgage is small.
As you can see, setting up a short sale is complicated and requires some negotiating finesse. Although money is probably tight for you right now, I think it would be worthwhile to consult local professionals with experience in the process, including a tax advisor and a real-estate agent.
Please don't hesitate to contact me if you would like some assistance.