Dear Dave,
My wife and I recently moved, but we still own our old house out of state and owe about $122,000 on that mortgage. We took out a 125% mortgage to allow us to do debt consolidation and give us extra cash. We owe about $34,000 on that second mortgage, so now we owe $156,000 on the house and it’s only worth $150,000. We’ve been trying to sell it for six months with no luck. We’re still paying the mortgages on that house plus we have a mortgage on our house here in Michigan. We can’t do this much longer. What should we do?
From Chad

Dear Chad,
You’re now a living example of why you should NEVER take out a 125% mortgage under any circumstances!

Call the company that holds the second mortgage on your original house and tell them where you are. Let them know that you’re ready to hand them the keys unless they’re willing to work with you. Remind them that at the moment they have a partially-secured second mortgage for $34,000, of which around $10,000 or more is unsecured. You can make payments on a $34,000 loan, but you can’t make the payments of a $156,000 loan, which is the total of your two mortgages on that house.

Then, get them to admit that you don’t have a collateralized loan. They already know this, but it needs to come out of their mouth. Suggest that they allow you to sell this property for less than $156,000 and you will sign a note for the difference. For instance, if it sells for $136,000, the mortgage companies get all of the proceeds and you sign a note with them for $20,000. See if you can get them to sign a partial release under those circumstances.

If they’ll do that, you can reduce the price of the house and put an “Owner Desperate” sign in the yard to get that thing sold. You’ve got about a 50-50 chance of them accepting this kind of arrangement.

If your credit is still clean, another idea is going to a local credit union and borrowing $15,000 or $20,000 on a signature loan to pay down this second mortgage to the point where you can sell the house for enough to pay it all off. If you go that route, I wouldn’t send the money from the signature loan until you’re ready to pay off the house off altogether. That way you aren’t stuck with yet another payment until the house sells!
- Dave