Negative equity is becoming all too common…

A house was bought several years ago for X amount, but now the value is cut in half. There is no way the owner can sell it to pay off the loan, unless he has substantial equity already built up, so his only option is to foreclose.

The damage it does to credit scores is immense. The prospect of getting another loan of any kind is shot for years to come. But more and more homeowners are weighing the options and deciding they’d rather get out of debt.

I’ve often thought about this myself. I love my home. I know that if I foreclosed, I wouldn’t be able to buy another one any time soon. But I also know that I will never be able to sell the house for what I bought it for. So unless I intend to stay here for the rest of my 30 year loan, I’m going to lose the money. It can be today, or it can be 5 years from now. It almost seems like it would make sense to do it now so I can start re-building my future.

I don’t plan on doing anything like that right now, but I am curious to hear what other people have done. It’s a problem that isn’t going away.

What are your thoughts? Have you foreclosed on your house? Do you regret it? What influenced your decision?

But that is assuming that house prices will stay static for years to come. We had severe global recessions before but asset prices always bounce back at some stage - probably before the 30 year time frame you mentioned, so you could be pleasantly surprised by the outcome if you have hung in there.

I have no clear-cut answers. I believe that I’d only ruin my entire credit history if I absolutely 100% HAD to/REQUIRED to do it. I do know that it is happening. Routinely. So, we’re headed toward a nation of millions of folks with poor credit histories. That doesn’t sound good to me.

Talk to your lender about a loan modification. You may want to use a specialist/lawyer to submit the actual paperwork. Banks don’t want to own a home and would rather take a reduction than the cost of foreclosing plus loss of securitized investment of your mortgage. The one thing you want to check is how much a loan modification will ding your credit score. It’s not as much as foreclosure or a short sale but I think there is some effect depending upon what parameters are reported to the credit agencies.

Making such a drastic decision when the economy is in flux seems premature. I would wait a few months before seriously considering such a thing to see where things are headed.

Nathan….don’t talk to your bank. It takes 6-8 months for re-modification through them. Instead, talk to the broker who initially secured your loan and title service. The brokers are very good as fostering the best deal for you. This would be a good first step….Joe

I appreciate the input everyone, but this was intended to be more of a general discussion.

Sorry….my bad.

Markets always come back. Even though values are down, they will be back and plus some very soon. ( a couple years) Also- people exaggerate about the decline. The worst hit areas in Florida and Las Vegas are only down 25-30% for their 2006 peak. And that is the worst of the worst. The problem is that inventory has risen by 55%. The market is self correcting so less inventory is coming onto the market, the subprimers are all going through their foreclosures now. Soon it will be back to normal increases in property value. Not the giant leaps of the flipping heyday but steady growth. And it won’t take anywhere close to 30 years.

I just found out that the banksters in most states can go after the difference between your loan and what they can sell the house for. It’s called “deficiency judgements.”