It is estimated that nearly one in four homes is considered underwater or worth less than what is owed on the mortgage loan. As the number of sinking mortgages and foreclosures continue to hover around all time highs, many homeowners are left feeling trapped and hopeless. Although there are several options available, many people simply don’t know where to start.
The trouble with an underwater mortgage is that it can limit the number of options available. Compared to defaulting on a mortgage that is equal to the home’s value, many lenders are less flexible with debt relief options when the home has lost significant value for whatever reason.
In general, homeowners are going to find it very difficult to secure a mortgage modification on a home that is either already in default or considered underwater. Refinancing the mortgage is also difficult at this point. However, nothing is impossible and there are several government programs that may be able to help underwater homeowners. The Home Affordable Foreclosure Alternatives program and the Home Affordable Refinance Program are two federally-backed initiatives designed to help those struggling with mortgages in a home with sinking value.
Filing for bankruptcy is also an option for underwater homeowners. In fact, bankruptcy may be the easier way to help alleviate mortgage debts on a home whose value is less than what is owed. In some cases, the bankruptcy court may approve for the amount owed that exceeds the actual value of the home to be eliminated in a Chapter 7 case, while the remaining amount owed on the home is repaid under a Chapter 13 case. Many homeowners have found bankruptcy to be helpful in stopping or preventing foreclosure, while they obtain assistance in repaying what is owed.