Posted on: 04th Feb, 2009 08:13 pm
In early 2006 my wife and I refinaced our house. We took out a first mortgage, 30 yr fixed and a second, line of credit. The appaisal came in at 350000, we got the approval and took out the loans. Later that year I had a pay reduction at work and we thought we might have to move, worse case senerio. So we had a market analysis done and it came in at 275000! We now still owe 320000. Why would the appraisal be so far off and is there anything that can be done about it. Things got a little bit better at work so we didnt need to move, now things have gotten even worse but we cannot sell for what we owe. Any advice or help is appriciated!
Hi rhock,
Perhaps the appraisal waqsn't too high when you refinanced the home. The current appraisal value has truned out to be low because home prices have dropped down in many states. So, it's probably the same in your area. That's the reason your home sale rpoceeds may not be enough to cover the loan balance on both mortgages.
What you can do is, sell the property at a price lower than what you owe and then pay off the remaining if you can afford. This is what a short sale is all about. In such a case, the lender may get a deficiency judgment order from the court so that you pay down the remaining debt. If you fail to pay the second loan after the first is paid off, the lender may charge off or forgive the debt.
When the debt is charged off, it passes on to a collection agency who them collects payments from you. It's better that you negotiate for a separate payment plan for the remaining debt if you do a short sale. At least you can prevent it from going into collections.
On the other hand, if the deficiency is forgiven, you don't need to pay it off. But you may have to pay taxes to the IRS if you don't qualify for mortgage tax relief. However, if you have a nonrecourse loan, no deficiency payment is required.
Thanks
Perhaps the appraisal waqsn't too high when you refinanced the home. The current appraisal value has truned out to be low because home prices have dropped down in many states. So, it's probably the same in your area. That's the reason your home sale rpoceeds may not be enough to cover the loan balance on both mortgages.
What you can do is, sell the property at a price lower than what you owe and then pay off the remaining if you can afford. This is what a short sale is all about. In such a case, the lender may get a deficiency judgment order from the court so that you pay down the remaining debt. If you fail to pay the second loan after the first is paid off, the lender may charge off or forgive the debt.
When the debt is charged off, it passes on to a collection agency who them collects payments from you. It's better that you negotiate for a separate payment plan for the remaining debt if you do a short sale. At least you can prevent it from going into collections.
On the other hand, if the deficiency is forgiven, you don't need to pay it off. But you may have to pay taxes to the IRS if you don't qualify for mortgage tax relief. However, if you have a nonrecourse loan, no deficiency payment is required.
Thanks
rhock, you are not the only person in the usa who is suffering from sticker shock these days. property values all across the country have dropped, so it's not much of a surprise to me to hear that your home's current value is less than earlier and less than you owe on the mortgage.
it seems to me that your plan is to stay in the home and continue paying the mortgage. that is the best plan you can have, in my opinion. eventually, you'll pay down your mortgage loan and the value of the property will exceed your balance. when that takes place, you can shout "hallelujah" as if you'd gained value in the home. and we don't know when or if our economy will change and prices will again increase. all we can do at this time is hold steady as best we can and pray for that increase.
it seems to me that your plan is to stay in the home and continue paying the mortgage. that is the best plan you can have, in my opinion. eventually, you'll pay down your mortgage loan and the value of the property will exceed your balance. when that takes place, you can shout "hallelujah" as if you'd gained value in the home. and we don't know when or if our economy will change and prices will again increase. all we can do at this time is hold steady as best we can and pray for that increase.
I have a friend and this is what he did. He was in the same situation as you and he had to move out of state for employment. He had just enough money for a down payment on his new house and made just enough to qualify for another mortgage. He then moved and walked away from the old house. This will kill his credit because the first home is now in foreclosure. He said the bank on the first home does not have any claim or lien rights on his new home. He did not want to do this but desperate times required desperate measures. I suggest you consult an attorney before you consider this.
Reality is a tough pill, but that is the state of the economy. 30 - 35 percent declines are common in IL over the last 3 - 4 years, some areas feel 80 and even 90 percent in Illinois other areas barely fell 10 percent, perhaps some not at all. That person sounds really lucky, a decline of only about 27 percent, below what we find typical, but not an uncommon loss. If they pull out the first time home buyer credit and unemployment does not fall below 10%, expect the second half of this year to be worse than the first half of last year. Appraising Reality (substitute for Realty) is tough, but that is what it is folks. We are all crying together - 40 percent of Appraisers in past 3 years are gone, the rest of us still trying to hold on.
I'm affraid this is why Real estate is an "investment" not a guarantee. all investments carry an element of risk.
everyone with a house cheers when prices are going up 10-20% a year and cries when the market drops.
everyone with a house cheers when prices are going up 10-20% a year and cries when the market drops.