You want to buy one of the latest model cars, or a nicely located house, or a home theater. Nine out of ten times, you may not have ready cash to buy one of these. So, you will go in for a loan; and after availing the loan, you will naturally start paying the monthly dues towards the loan. One fine morning, you will realize that the balance amount repayable by you is much more than the value of what you have bought. The loan that hangs on your head now, is known as ‘upside down loan.’ To prevent such a thing happening to you, you must make it a point to settle the loan earlier, i.e. before the value of what you have bought goes down.
Though all upside down loans are complex, in nature, a home upside loan is more complex than others. Why it is considered so? When you bought a house, you would have expected that the value of the property would go up by manifold in the course of a few years. But what happens in reality? There is a general recession all over and particularly in real estate, the value goes down much. In such a situation, you have an upside down loan in your hands. Sometimes, a somewhat risky mortgage too has a chance of becoming an upside down loan!
What is to be done when you yourself have an upside down loan? You should be very careful while considering the various aspects involved in the matter before you take a final decision. At the outset, you have to take a decision in the matter of allowing this loan to continue or not. If you make increased monthly payments, you can get along for quite some time without problem. In case there is a decline in the value, at an alarming speed, you will have enough reasons to worry about. Some time ago, though there was decline in the real estate market, a large number of house owners decided to stay put despite the decline. The result was terrible! Please do not allow such a thing happening to you.
There is no need for you to get panicky when the real estate market goes down and you are stuck up with an upside down loan in your hands. Nowadays, there are enough options available. The best among them is ‘reversing the position’ i.e. changing the ‘upside down loan’ to ‘right side down loan.’ Is it possible at all, you may doubt. It is possible and there is no doubt in this regard. Through the program called ‘Principal Reduction Program’ you can get the principal amount reduced. The bank should agree to this proposal.
Generally, banks may not agree to this proposal. However, in view of the fact that you have been prompt in payments, and considering the good relationship, there should not be any valid reason for the bank to reject your request.
Apart from this ‘Principal Reduction Program,’ there are some more options available, like modification of a loan, refinancing and walk-away solution. Besides, there is one more option i.e. ’signing a deed-in-lieu of foreclosure.’ Honestly speaking, you should not opt for any one of these simply because none of them is good.
Going in for a short sale of the house property will be the second best option after the Principal Reduction Program. As for short sale option, there are different kinds of short sales and, therefore, it is advisable you get in touch with an agent with sufficient experience in this field so that you can get the best out of your short sale.