Dear Sue,
I bought a little fixer more than three years ago. I didn’t have much of a job but I had a great down payment from an inheritance.
I paid just over $400,000 for my house. I didn’t want to borrow more money than I needed to, so I planned to use my inheritance for the remodel.
I signed loan papers that I thought I understood. I didn’t ask enough questions. I just put myself in my loan broker’s hands.
A long story made short: I put all my inheritance into remodeling. My broker has refinanced my house three times since I purchased it. After the negative amortization and loan fees, I now owe almost twice as much as what I paid for the house in the first place. Loan fees of more than $60,000 were added to my loan. I never knew what negative amortization was before but I sure do now! Since I don’t pay enough each month to cover the full principal and interest, the amount is added to the loan balance. My loan grows bigger every month!
I feel like I need to do something before my loan comes due again in three years. I called a real estate agent and asked her to do a market analysis. She said that I was upside-down and should consider a short sale. She said that I could also consider staying in my house for the next three years and see what the market is doing then.
Given fact that I am almost 65 years old and single and have been taking the money out of my retirement to make the house payments, I don’t know if waiting would be a good idea.
I am heartsick over all of it. I just want to do the right thing. I love my home and would love to keep it. Do you have any advice for me?
— Heartsick
Dear Heartsick,
I am heartsick for you!
Whatever you do, don’t get a new loan. The definition of insanity is doing the same thing over and over and expecting a different result.
Begin by expecting miracles. Don’t call your loan broker. Call your lender’s (the company that funded the loan) loss mitigation department and ask the following questions:
— Can the loan be restructured?
— Are there any assistance programs available to help eliminate some of the debt?
If you can’t get an answer, ask to speak to their immediate supervisor. If you can’t get any help in this way, you are a prime candidate for a short sale. I would suggest asking for a short sale package, give your lender permission to deal with your Realtor, and get going.
Choose a reputable real estate agent experienced in short sales.
Thanks to recent legislation you may not have to pay tax on your debt relief. You will have lost every penny that you put into your house.
Giving up your home may be difficult for you but it may be the best thing you can do for yourself financially. It could be a matter of good Home $$$s and Sense.
Sue Thompson is owner and sales manager of HomeTown Realtors. She can be reached at seesue@seehometown.com, or on the Web at www.homedollarsandsense.com.