How to Deal With Upside-Down Home Equity

You're in a financial crisis. You owe more money on your home than it's worth, and you can't take out a home equity loan because there's no worth there to tap into. This is not a good place to be and you have to find ways to deal with it. Here are some steps you can take to ease the financial and emotional stresses of this situation.

Instructions

Difficulty: Challenging

Prepare to Sell Your Home

1. Leave your emotional attachments behind and take action to sell your home. Pack away all those knickknacks and photo albums that are collecting dust. A clutter-free environment will clear the way to potential buyers.
2. Make your front yard look attractive. Mow and trim your lawn. Get rid of overgrown shrubs and plants. Curb appeal goes a long way to attracting potential buyers. They'll want to see what's inside if the outside looks nice.
3. Paint the interior walls and remove old furniture. Store it, sell it, or donate it to a thrift store. Potential buyers want to envision their furniture in the room, not yours. Leave only what is necessary and appealing to the eye.
4. Hold a yard sale or sell or donate items you no longer need that are creating clutter in your home to consignment shops or thrift stores.
5. Add new siding to your house if it's old and no longer in good shape. If this is not financially feasible, borrow a second-hand power washer to help make the exterior of your house look like new.
6. Sell your home yourself rather than hiring a realtor. The commission fees demanded by realtors can only add to your financial crises. Instead, build the commission fee into your asking price and it will give potential buyers more bidding power.

Steer Away from Foreclosure

7. Keep from overspending with plastic. More credit card debt will only hinder and not help your upside-down situation.
8. Pay attention to letters you get from your lender when you're upside down on your home equity. They are not always bad news. Oftentimes, they are trying to help rather than hurt you. Attempt to negotiate the terms of your mortgage loan. They don't want to see you lose your home.
9. Learn about your rights and seek counseling for your upside-down home equity crisis. Laws vary from state-to-state. Visit the U.S. Department of Housing and Urban Development (HUD) web site to find a certified counselor in your area.
10. Talk to a lawyer. Most will give you a free consultation and help you make informed decisions about how to deal with upside-down home equity and offer legal strategies for staying out of foreclosure.
11. Steer far away from people who promise good results from rescue scams. Most just want to sell your house from under you and take your money. Instead, go to government agencies, reputable banks and other companies to learn what you can do to protect your home.

Avoid Bankruptcy

12. Strive to keep everything you've worked for. If you file for chapter 7 bankruptcy, you stand to lose your car, your furniture, your credit cards, and more. Both bankruptcy and foreclosure remain on your record for years, and it's hard to rebuild your credit rating if you have no credit cards.
13. File for chapter 13 bankruptcy if this seems to be your only option when you are upside down on your home equity. Here, you can pay back your debts through a reorganization plan, including your mortgage debt and any back payments you owe and also stop foreclosure proceedings. Be aware that your payoff balance will go up, and you'll be limited in your repayment options.
14. Consult an attorney. Nothing compares to good legal advice when you are facing upside-down home equity, foreclosure, or even bankruptcy.

Tips & Warnings

• Avoid using credit cards to pay for improvements. You will dig yourself deeper into your upside-down home equity situation. Be frugal. Visit web sites to learn how to improve your home's appeal for the least amount of money.
• Avoid taking out home equity loans to pay off credit card or car loans.
• Be aware of mortgage brokers who convince you to take out home equity loans to buy new cars, boats or other expensive "toys." This is risky business, and you wind up paying more for those items over the long run by adding the cost into your mortgage loan.