Best option to get rid of underwater property

Asked by Mike, Sacramento County, CA Thu Mar 12, 2009

I purchased my primary residence during the peak and my house is underwater. I put down ~$50K and my property is down 62% from purchase price of $370K. What is the best alternative out there that i should consider--including Short Sale, walking away, loan mod, short refinance...? My goal is to buy another home for the right price.

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, ,
Thu Aug 15, 2013
I was just looking through old post and I noticed yours. If you were not able to refinance at the time of the post, I can certainly help you out now. You can call me at 408-352-5147 or email me at You can check us out at I will look at your situation and present you with some options.

Alex Greer
NMLS #1056079
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Judroberts8, Home Buyer, Lancaster, PA
Tue May 8, 2012
We buy properties like yours. Let me know if interested in selling. Gail
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Joanna Jensen, Other Pro, Livermore, CA
Thu Dec 17, 2009
Hi MIke,
I have a few new questions for you.
1) who is your lender that makes a big difference. Wachovia is changing the way they do business. Currently the do principal reductions and potentially extend the term of the loan to 40 years.
2) Do you have one or two loans. You may be able to settle an unsecured 2nd loan. If you can do that you may then be able to sell

JoAnna Jensen
Realtor - Legal Assistant
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Robyn Govert, , Scottsdale, AZ
Mon Oct 26, 2009
Hi mike!

I hope I wasn't too late! You're definitely smart in thinking about the big picture, especially after wanting to buy another home. For someone in your situation, the best option will be to do a short pay refinance. As long as its your primary home, you haven't missed any payments, you have decent credit, and a job... You can refinance it in a secure 30 year fixed loan for 90% of the current market value of the home. This is starting to gain a little more popularity as the bank (and the general public for that matter) are learning that loan modifications are not only hard to obtain, they don't really work. If you were to refi, you would even end up with some equity in the home. You can do this with investor properties too, but it changes the stakes a little bit.

I'm a mortgage specialist, I do work with clients like you every day. If you have any questions, you are welcome to contact me.

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., , Los Angeles, CA
Sun Mar 29, 2009
Are you trying to beat the system or capitalize on recent events. Predatory lending must be proven using a sound government approved calculation. If your upsidedown there are likely countless other small, medium and overwhelming instances of fraudulent and deceptive lender acts that may apply

You must have a complete analysis and can detail the unlawful acts before you make the allegations your inderwater if you seek a short sale. The allegations will get no response unless encapsulated n a complaint. Be cognizant of the difference between "Spam" and earnest commentary. Commentary is allowable but never intended to substitute for legal advisement. Our work is almost exclusively done for attorneys who contract us or we refer out.

You must fight back and keep the REO or pending foreclosure sale from the many here who will will unbeknownst to all forget they are marketing a home someone lost to predatory lending.
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Mike, Both Buyer And Seller, Sacramento County, CA
Sun Mar 15, 2009
I really appreciate the helpful responses from you all! They are really great advices to consider. To answer some of your questions, my only concern is that I have a steady income and will be difficult to prove hardship. Also, i am not behind on payments to preserve my credit score so that i can buy that house.

The responsible thing to do is to stay at the current home, but my family have outgrown the house that we could only afford during the peak. This is a small 3 bed room home & living area. I hope to find the most responsible alternative to the mess i'm in.

Again thanks all for your post; very great place to start.

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Uncle Steves…, , Sacramento County, CA
Sat Mar 14, 2009
50K is a lot to walk away from. If you have more cash way not refi with more cash down and lower your payment. I have seen in Sacramento county where home prices did eventually rebound and went higher. We may experience a rebound again, although no one knows how long it will take.Your case is unique and It appears that to walk away will not be the best option.
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Sue Archer R…, Agent, Palm Harbor, FL
Fri Mar 13, 2009

As you see there's no clear agreement on the one and only way to go. Every bank,with some incentive from the Obama plan if they'd accepted TARP, and others voluntarily, are trying harder to work with homeowners to help them stay in their home if at all possible.

As it is the exact same paperwork, I suggest you exhaust all options to request a loan modification, or refinance first. If you choose to place it on the market as a short sale subsequent to hearing from the bank that the first two options cannot work for you, that would work. You could also try to short sale it simultaneously. HOWEVER, until you have the banks blessing, you become one more of the short sale listings that are really not approved by the lender so, in my mind, not a legitimate listing. These are the short sales that are muddying up the market.

My experience with my short sale clients has been very quick in doing the first approach. In each situation, all with two different lenders on the property, we received approvals within TWO WEEKS of receiving an offer, not some long drawn out 2-3 months. And my sellers understood that we had evaluated all alternatives thoroughly prior to proceeding to short sale.

Whatever solution works, submitting a clear concise package to the lender will get you a quicker resolution.
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Annie Nguyen, Agent, Fremont, CA
Fri Mar 13, 2009
Hello Mike,

Your option is to have the loan modification to save your home and you can rent it out so you can save your credit for the next purchase on your new home. Second option is to do the short sale which will be slightly damage your credit but not severe as you walk away. May I ask have you miss any mortgage payment or have you received Notice of Default from your lender? If you'd like to have more information about short sale you can contact me at 510-921-8501, I will be gladly to answer your question.
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Chris Cole, Agent, San Francisco, CA
Fri Mar 13, 2009
I would be very interested in more advice on this topic. No short sighted, ill informed answers but educated knowledgable advice like the comments made so far from Elizabeth, Bob, Sue & Ute.

I havea client who currently owns a condo that at it's height was valued at $670K , she took out and equity line bast on that value bringing her CLTV to 75%.
Since that time she was laid off for 6 months and fell behind on her HOA assesments.
her property value is now down to $575K max.
So she is facing foreclosure from both her lenders and the HOA.
I looked into optoins for her and can't find a single piece of helpful information.
If she short sells, or is foreclosed on she will still be liable to the HOA and have lost her home.
Past HOA asseesments can't be included in a bankruptcy.
Is there any hope, I worry about her.
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Sue Archer R…, Agent, Palm Harbor, FL
Thu Mar 12, 2009
I think the responsible thing to do is to work with your lender and try to do a loan modification or refinance on your property. The guidelines were just released from the Obama Stimulus plan on March 4th. Banks have monetary incentives to work with you for resolution.

Your worst alternative will be to walk away. You need to start by completing the financial package. That is the same paperwork to be used in any of the other alternatives, including loan mod., refinance or a short sale. From your description, it doesn't sound like you put down 20% so you may have mortgage insurance on the property, and if that's the case then the bank may have a better alternative than negotiating with you for a short sale.

It really all depends on looking at your complete picture. If you want help with that I can provide you with the forms that you would want to prepare and how to strategize for the best alternative for your personal situation. And you don't mention one other option that might need to be considered. That would be to stay where you are until the market recovers.

You will know what's right for you when you have all the options, pros and cons, in front of you to consider.
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Bob Georgiou, Agent, Danville, CA
Thu Mar 12, 2009
Right now there are options coming down the pipe that are supposed to reset the values on property. While my clients have not had much success with these programs (see my blog) they fact remains they exist. The first is "Help for Homeowners" the other is the latest Obama bank rescue.

Both programs are designed to reset the basis on the property in consideration the note becomes shared appreciation. "Help for Homeowners" owners have to be delinquent, the Obama plan owners have to be current and a fannie mae or freddie mac loan. In both cases the goal is stem foreclosures and bolster home prices at current levels.

Walking away with the goal to buy back in at current prices won't work. Early on when prices started sliding the banks realized a percentage of homeowners were gaming the banking system doing essentially what your stated goal is to do and is not recommended. I would advise a discussion with a local real estate attorney about the consequences of a walk away or foreclosure and an accountant.

Please e-mail me with your story whateveryou do. I'd like to hear about what you chose, how you were advised, and what success you had.
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Ute Ferdig, Agent, Newcastle, CA
Thu Mar 12, 2009
Hello Mike. Since you want to buy another house, you'll want to go the route that will affect your credit score the least. Foreclosure will affect your credit score the most and no lender will touch you in the near future with a foreclosure on your record. Refinancing may not be a viable option if the value of your home has dropped so much as the banks typically only go up to 105% of the current property value and if the current property value is well below the amount owed, a refinancing is usually not a viable option. That leaves you with a loan modification and the short sale. Both require a hardship. Since you don't mention anything about your circumstances, I can't really tell whether you'd qualify for either of the two. As far as loan modification is concerned. I would suggest that you contact your lender a.s.a.p. as you want to have the loan modification question answered before you put your property on the market. Prepare yourself for a bit of a waiting period as the lenders are swamped daily with loan modification inquiries. Everybody wants to know whether they'll be able to get help under the Obama plan.

Best of luck to you.

Ute Ferdig
Avalar Real Estate
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Jonathan, , Tampa, FL
Thu Mar 12, 2009
Well it depends on if you want to stay in your home or not.

Stay in your home - try a loan modification

Getting rid of it - do a short sale.

Try not to foreclose.
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