Underwater home — can’t keep up with mortgage!

Hi terry…. My husband and I inherited a home about 2 yrs ago … We’ve taken out personal loans to keep up with the mortgage payment.. We tried putting it on the market but we owe more than market value… Do you have any suggestions?

Terry Says:  If you’re not living in the home, then it could be considered a “bad investment” and not a loss on a personal residence — especially if you had rental income, which doesn’t sound likely.   Your “cost” basis in the home was the value of the home on the date of death of the person who left it to you.  If you have been living in it personally, and you sell and take a loss, there is no deduction.    And if you sell for less than the mortgage amount, the difference could actually be considered income to you!  (It is the amount of the loan that is “forgiven” if you default.)  There were some exceptions made during the financial crisis — but they may not apply in your circumstances.

So, I’m not an attorney and I don’t have the details of your situation.  You do need professional advice.  You need a competent real estate attorney in your state to explain your options.  But if you want to stay in the home, you need to look into Federal programs designed to help underwater, but current borrowers.  For starters, here’s a link to an article about the FHA program for underwater borrowers.  It may actually give you a forgiveness on 10 percent of the mortgage amount.  Do check this out.

And there’s the HARP program if your loan is owned by Fannie Mae or Freddie Mac (even if it is serviced by a commercial lender).  You need to check that out, as well.  Click here to read an excellent article on that subject at Bankrate.com.