Help! My Mortgage Payments are Killing Me!

Hello Paul,

We can not longer make our mortgage payments. Thanks to a Thanks to a corrupt mortgage broker we end up with a 9.5 in the first loan and a 12.5 in the second loan. We have good credit scores.

Our payments are extremely high. We are trying to sell the house (by owner), but houses in the area are selling for about $100,000 less of what we owe. The home title is under both of our names. The loan is only under my husband name.

He also owns another property that is only under his name. That property has around $100,000 equity. He is currently renting it and we don’t want to sell it.

We own a small restaurant that lately is not making enough money to pay all our numerous debts.

My questions are: if we stop making payments in our primary residence, can they go after our rental property? Also, if we do a Short sale in the primary residence will it damage both of our credits, or only his? There is any other way out?

Marcia

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Hello Marcia,

Q:  If we stop making payments on our primary residence, can they go after our rental property?

A: Depending on state law and your specific circumstances, it is possible that a foreclosure on your primary residence could result in a deficiency judgment that could attach to the rental property. 

Q: Also, if we do a Short sale in the primary residence will it damage both of our credits, or only his?

A: Since “the loan is only under my husband name” (Sic), a short sale on your primary residence will not reflect on your credit; however, if the property was to go through foreclosure [as opposed to a short sale], then the foreclosure could report on your credit report under public records [same caveats as question #1 apply].

Q: Is there any other way out?

A: There isn’t a simple answer to that, other than I recommend you [or anyone in similar circumstances] talk to an attorney or HUD approved counselor about your options.  A short sale could be a solution.  It seems to me a more favorable stage would be set if the rental property was upside down $100,000 and the primary [homesteaded] property had $100,000 equity.

(Things that make you go hmm…)

In any regard, the second mortgage lien [at 12.5% and upside down] would be the last one I would pay in my priority of debts.  If the second is a HELOC and payments weren’t received for a time, until more cash flow was generated to begin making payments again, then when I was ready to resume making payments on the HELOC, I would insist on re-aging at that time.

Thanks for the questions and hope this helps.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.