Experts offer advice to those "under water" on their home mortgages

Property ownership climbed to 69 percent in 2004.   At the present time, however 1 in 6 homeowners  are "under water" on their home mortgages, owing more than their home is worth.  Experts give advice on a growing problem.

The
availability of subprime mortgages for a number of years before the
real estate collapse that began in earnest in 2007,  combined with the
inflated prices of houses in the United States, paved the way for the
current national housing crisis.


RealtyTrac says that foreclosure filings were reported on 937,840
properties in the third quarter of 2009. This was nearly a 23 percent
increase from the same quarter in 2008. Basically one in every 136
United States housing units received a foreclosure filing during the
quarter. Arizona was among the top ten states with the highest
foreclosure rates in 2007, with 6,339 filings (or approximately one
foreclosure filing for every 401 households).


With default rates so high, a struggling homeowner may wonder how to
get out from under mortgage debt, whether through strategic default or
eliminating the mortgage loan in bankruptcy .

Here are some of the specifics from Joseph McDaniel, a bankruptcy lawyer:


"In a strategic default, the homeowner purposely walks away from the
mortgage debt. In some states, the lender may first foreclose on the
house -- and if there is still a deficiency after the foreclosure sale,
then pursue a judgment against the borrower. The lender may try to
collect the money judgment by levying on personal property and bank
accounts.


Arizona is one of 11 nonrecourse states, also called anti-deficiency
states. Generally, the lender must recoup its loan in the foreclosure of
the home and is not permitted to pursue other property of the borrower.
If the home is the biggest source of debt and hindrance to solvency,
some Arizona homeowners may consider strategic default.


After stopping mortgage payments, it may take time for the bank to
complete the foreclosure process. While some try to stay in the home as
long as possible, others quickly secure less expensive housing --
perhaps even in the same area, especially if neighborhood housing and
rent are depressed.


There is some evidence that people may be morally disinclined to
default on their mortgage. Many may not be aware that borrowers in
nonrecourse states actually pay a premium for the right to default
without recourse. Economist Susan Woodward recently estimated in a
report prepared for the Department of Housing and Urban Development that
buyers in such states pay an extra $800 in closing costs for each
$100,000 they borrowed.


Homeowners should weigh their options carefully. The American Bankers
Association (ABA) recently issued a warning about the consequences of
strategic default. Whether it is due to a strategic default or not, a
foreclosure negatively impacts a consumer's credit score and remains on a
credit report for seven years. The ABA says a foreclosure can lower a
FICO score by 100 to 400 points.


Additionally, voluntary foreclosure can affect a homeowner's ability to
qualify for a mortgage for many years. Fannie Mae recently announced
that borrowers who deliberately default on their mortgages will be
ineligible for a new mortgage backed by the government-sponsored entity
for seven years after the date of foreclosure.


The Mortgage Forgiveness Debt Relief Act of 2007 has been extended
through 2012. However, it offers widespread protection against federal
taxes only after a foreclosure. State taxes may still be due on unpaid
debt."

The consequences of mortgage foreclosure
can continue to present problems for those who have had to give up
their homes because they can't pay the bills.  Credit problems, finding
another place to live, and tax complications are among the few.

Finding
a way out in advance is what legal experts say is important, at a time

when foreclosures are advancing at rapid rates across the country.