House Rich, Cash Poor

QUESTION:

We have a backward real estate problem. Instead of being upside down we have about $80,000 in equity. What we don't have is money and will shortly default. What can we do?

ANSWER:

You should see if there's anyway to keep the property. If foreclosed you'll still need shelter, and rental housing also costs money.

Since the moment of nonpayment has not arrived you need to take several steps now.

First, look at your monthly costs. What can you cut?

Second, if you've lost a job do you qualify for unemployment assistance?

Third, by any chance can start Social Security, if qualified? This can be tough choice because there are advantages to delaying Social Security payments.

Fourth, go to MakingHomeAffordable.gov and look at HAMP - the Home Affordable Modification Program. HAMP, says HUD, "lowers your monthly mortgage payment to 31 percent of your verified monthly gross (pre-tax) income to make your payments more affordable. The typical HAMP modification results in a 40-percent drop in a monthly mortgage payment. Eighteen percent of HAMP homeowners reduce their payments by $1,000 or more."

Fifth, speak with your state attorney general's office. They may be able to suggest modification programs and lender contacts that will be helpful.

Is it possible to rent out part of your home, say, a room or a floor? Rental rates have been rising and even a short-term tenant might provide the cash you need to retain the property until things get better.

Lastly, sell the house. You have equity. You can sell and completely pay off the mortgage. It may not be a preferred choice, but it's a better option than missing payments, losing credit, losing equity and being foreclosed.

E-mail peter@ctwfeatures.com. Due to volume, not all questions may be answered.