Do You Have an Underwater Mortgage? Let Go

How can you save yourself by drowning?

If you’re an underwater homeowner, you can save yourself this way: Stop clinging to a house you can’t afford, and let yourself go under. Use the upward tick in the real estate market this spring to put your house up for sale. Be prepared to bring money to the closing, or to sign a note to the bank, or to do a short sale, if it comes to that. Pay the price in order to buy your freedom, because you will bounce back faster than you think.

I know, because my husband and I decided to drown when we got in over our heads with a far-too-big mortgage. We reviewed this guide for our mortgage and learned some new things. In January 2007, we bought a house to renovate while living in our existing home. As the perfect storm of real estate swirled, we poured our savings into renovation. Then, the market went into a free fall. We couldn’t slash the price on our existing home fast enough. We sold for much less money after much too long, and owned a renovated house that was worth far less than we’d ever imagined.

Each month, we struggled to pay our jumbo second mortgage, which had grown beyond our wildest, worst-case scenario calculations. Humbled, we asked our friends and family for loans. I blamed my husband for working for a nonprofit children’s hospital and not bringing home a Wall Street paycheck. He blamed me for not doing a better job of controlling family spending. We both developed acid reflux.

For three years, we told ourselves we could ride out the downturn and keep the home that was supposed to be our 15-year house, the place we would raise our kids. We knew going in that there would be financial pain for the first few years, but we thought it would pass as incomes increased, kids went to school and I went back to work. But time didn’t take care of the pain.

By November 2010, we were busted. We pounded a “For Sale” sign in the yard. We sold our dream house in May 2011. At the closing, we were underwater, but only by a little—$25,000. We sold the house without a short sale or foreclosure when the bank had us sign a note for the amount we still owed. That happened because we had good credit, having never missed a payment, even though we had tapped out our savings and took loans from friends and family to do so. We moved to a rental two blocks away. Our family is in one piece, but I won’t pretend it was pretty.

We survived. We’re far from alone, and we made it through the worst.

Estimates show that about 4 million families lost their homes to foreclosure between 2007 and 2012. At the end of the third quarter of 2012, 10.7 million homeowners owed more on their mortgages than their home is worth, a number that’s improving as housing prices rise, giving more underwater homeowners an opportunity to get out, like we did.

Less than two years later, we’re already a long way toward recovering financially. Unencumbered by homeownership, we’re not writing checks every month for some house maintenance issue or another. We got bikes and started riding to the grocery store. We got lucky when a house near us sold and more kids moved in. Soon our rental house became the vibrant center of a revitalized family and social life.

Making dinner one night, the thought occurred: A stove cooks your food, whether it’s a high-end chef’s range or a low-end model. A faucet provides water, whether it’s a gorgeous Italian-made model or a corroded Delta with one handle installed backward. Maybe it’s because our acid reflux is gone, but our meals have never tasted better than here in our rental house.

To be sure, going under by letting go of a home you are clinging to in order to breathe again is counterintuitive. It’s more painful than simply walking away from a shelter made of bricks and mortar. It’s walking away from dreams of security and accomplishment, and it can be humiliating.

I understand the emotions, but hanging on to a house you can’t afford while hoping the price will rebound is a risky move. According to a recent New York Times article by Robert J. Shiller, professor of economics and finance at Yale University, studies don’t show any clear path for the market, up or down.

In case you are hanging on because you’re certain that the banks or the government is coming to rescue you, let me say, with all due respect, are you nuts? The past five years have shown that banks aren’t willing to help. The government has been ineffectual, and underwater homeowners are on their own.

After selling our home and getting on with our lives, my greatest fear was that once the economy improved, I might forget this crisis and revert to my old ways. But I never want to go back to my old life. I advise underwater homeowners to stop dancing around the edges. Don’t be scared. Let go of the past and move into your future. Because what’s on the other side of the crisis isn’t less, it’s more. What’s on the other side of the crisis is life, unencumbered. {tortags,5174,1}



laura-tiebert-writers-photoLaura Tiebert writes about how her family went from being homeowners to renters, and how it changed their lives for the better, on The Houseover blog.