Underwater Mortgages

An underwater mortgage is one in which the borrower owes more on the mortgage than what the property is worth. The result is foreclosures and problems in the housing market. Due to the mortgage crisis, the federal government instituted loan modification programs to help refinance certain borrowers who met specific guidelines. If you are concerned about an underwater mortgage, particularly how it affects the sale of your home, the Boston real estate lawyers at Pulgini & Norton may be able to provide legal advice and representation.

Many Massachusetts homeowners remain underwater since the Great Recession. There were many old foreclosures that were stalled because of Massachusetts laws, but they are not proceeding, and the number of foreclosures continues to rise. The number of foreclosure auctions and completed foreclosures has risen over the past two years, although it is not as high as it was in 2007 and 2008. Most of the drops are results of state law. The state passed a series of laws to reduce foreclosures in order to provide more time for homeowners to pay off a loan before a foreclosure is commenced.

Whether you should negotiate a loan modification to avoid foreclosure or try to participate in a federal program designed to provide relief for underwater mortgages depends on your situation. One issue that you will need to consider when deciding how to proceed is to determine what the owner of the mortgage is. Sometimes the owner of a mortgage and the servicer are the same entity, but often loans are owned by groups of investors that hire loan servicers to deal with the work of administering a loan.

In order to participate in the Home Affordable Refinance Program (HARP), you must meet various criteria. Fannie Mae or Freddie Mac must guarantee or own your mortgage, or your mortgage must have been sold to either of these prior to May 31, 2009. Your mortgage may not have been previously refinanced under HARP unless it is a Fannie Mae loan refinanced under the program during March-May 2009.

Additionally, you need to be current on your mortgage at the time that you decide to refinance, and you may not have any late payments over the past six months and no more than a single late payment in the last year. You should also be employed or have some other source of income that allows you to pay your mortgage. Refinancing may improve the stability of your loan. You may call Fannie Mae or Freddie Mac to determine if they own or guarantee your home loan, as a first step to determining whether to refinance under this program.

If you do not meet the qualifying criteria for HARP, another option may be to negotiate a loan modification. A successful loan modification allows you to keep your home. Most banks do not want to go through the trouble of foreclosing on a home and potentially losing money on the sale, so if you can present a solid case for a modification, they may be open to it. If you are not significantly delinquent on your mortgage payments, you have a solid income, and you are not too underwater, negotiating for lower monthly payments may be a good approach. However, you should understand the terms of the loan modification before entering into it.

Another option is to conduct a short sale. If you can afford your monthly payments, but you are underwater on the mortgage, you probably will not qualify for a loan modification. However, if the home has negative equity, it may be better to do a short sale and put money elsewhere. Generally, if you are underwater and also having cash flow problems, you will not be able to conduct a short sale or negotiate a loan modification.

At Pulgini & Norton, our experienced Boston attorneys can advise you on underwater mortgages, among other aspects of any real estate transaction. We can let you know what your options are and advise you on a strategy in connection with your home and your mortgage. Our firm handles real estate transactions in Newton, Lowell, and Cambridge, among other Massachusetts cities. For a consultation with a mortgage attorney, contact us online or at 781-843-2200.