Negative Amortization on My Mortgage?
By Kurt O'Keefe, Attorney at Law on Sep 6, 2007 in General Bankruptcy Information
Potential client calls about possible bankruptcy as alternative to borrowing $17,000, yes, seventeen thousand dollars, from his credit card, to take to his closing to sell, not buy.
Must have been a low offer, you say. No, offer was for the full asking price.
So how does he lose money on the sale?
The miracle of negative amortization. He had made all of his mortgage payments on time, on both the first and second mortgage.
Not unusual, in Michigan, that the house was for sale for two years before the offer came in.
Back when he sat down with the realtor to figure out how much he needed to get to at least break even, to come up with an asking price, he had the correct balance on both mortgages that had to be paid, and he correctly calculated what the realtor commission would be.
What he did not figure was the balance on his first mortgage was increasing by $700 per month, because his payment did not even cover all of the interest due. So, 24 months at $700 per month, $16,800 more owed on that first mortgage than when he listed the house for sale. Another month before closing , and he needs over $17,000 to cover the mortgage liens and realtor commissions.
A short sale is one alternative.
Borrowing the money, to bring to the closing to make up the shortfall is another.
A chapter 7 bankruptcy is another. This requires careful analysis with the facts and a good attorney.
I always say, an attorney’s opinion is only as good as the facts. No facts equals lousy opinion.
Get a good estimate on the value of your house, get the payoff amounts on the mortgages and any other liens. Figure out your monthly income and expenses.
If you walk away from the house, how much will it cost you to live somewhere else?
How much will it cost you to borrow money to make up the difference? How long before you pay that off?
Get the facts and expert opinion before you make your decision.
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