How to Deal With Upside-Down Home Loans in California

An "upside down" home loan means you owe more on the house than what it's worth. Houses lose value for a variety of reasons, including because of recessions and declines in the home-buying industry. People who may have paid inflated prices for their homes --- often with little money down --- are among the most likely to become victims of upside-down loans. The "Los Angeles Times" reported in 2010 that millions of people around the country --- including many in California --- were struggling with upside-down mortgages. According to the "Times," some 400,000 homes were expected to be be sold in the state in 2010 for less than the amount outstanding on the mortgage.

Instructions

1

Ask a California real estate agent to provide you with an approximate value of your home based on recent comparable sales in your neighborhood. Compare that price with the balance due on your loan to determine how upside down your mortgage really is.

2

Make an appointment with a California housing counselor certified by the U.S. Department of Housing and Urban Development, or HUD. Find a counselor in California by checking the HUD website (see Resources). Examples include the Anaheim Housing Authority in Anaheim, as well as the Neighborhood Housing Services of Orange County, also in Anaheim. The counselors are experts in working with people who are upside down on their mortgages.

3

Authorize the counselor to contact your lender directly to seek a solution. The most common solution is a short sale. A short sale is done in cooperation with the lender, who agrees to allow the house to be sold for less than the remaining balance on the loan. The lender often agrees to forgive the remaining balance --- but that must be stipulated in the short-sale agreement. That's why it's important to have a certified housing counselor negotiate for you. Another option is loan modification, which allows the mortgage to be completely rewritten by the lender. Improved terms such as a lower fixed interest rate and lower payments may make it worth your while to remain in the home while its value increases over the years.