Options for Arizona Homeowners When Debt Becomes Overwhelming

April 13, 2011

In recent years, the United States has seen one of the most uncertain economic times in its history. The housing market has suffered perhaps more than any other area of our economy.

According to CoreLogic, over 10.8 million homes are underwater, where the borrower owes more than the home is worth. That number is actually down from the second quarter of 2010, when over 11 million properties were underwater. But CoreLogic cautions that the decline in the number of properties with negative equity may be a result of a spike in foreclosures as opposed to a rebound in the housing market.

According to CoreLogic, Arizona followed only Nevada in terms of underwater homes, with 49 percent, followed by Florida at 46 percent, Michigan at 38 percent and California at 32. As bad as this year has been for the housing market, it may not be over yet. Morgan Stanley reports that we may not see how far housing prices will fall until the end of 2012.

Despite the decline of the housing market, homeowners who find themselves in an overwhelming situation do have options.

Strategic Default

In some cases, a homeowner may decide to walk away from the house and mortgage payments. These "strategic defaults" account for up to 26 percent of all mortgage defaults according to Time Magazine.

While walking away is tempting for many people, The Chicago Tribune notes that strategic default does have its consequences. Intentionally defaulting on a mortgage eventually leads to the foreclosure of the home, which can lower your credit score and remain on your credit report for some time. In June, Fannie Mae announced that homeowners who walk away from a mortgage they have capacity to pay will not be eligible for another Fannie-backed mortgage for seven years.

Short Sale

In a short sale, the homeowner agrees to sell the home at a loss and the lender agrees to forgive the amount of debt remaining on the home. However, some homes are so far underwater that the lender may not agree to the sale. Additionally, one often overlooked aspect of a short sale is the tax that may have to be paid on the amount of debt that is forgiven, depending on the amount.

Filing for Bankruptcy

At the start of the financial crisis, many banks were unwilling to negotiate reductions in mortgage principal or interest rates. But as the crisis has gone on and the number of defaults has grown, renegotiation has become a viable option for distressed homeowners.

Filing for bankruptcy can be a beneficial and necessary step for some homeowners, but it can be a complex process. If you are considering bankruptcy or any other option to get out from under debt, it is important to discuss your situation with an experienced attorney.

Article provided by Arizona Law Group of Trezza & Associates, LLC
Visit us at www.filebankruptcyinarizona.com