There’s quite a bit to say to homeowners who are underwater on their mortgages: short sale, offering the deed in lieu of foreclosure, refinancing, obtaining a mortgage modification, staying and paying, surrendering the home in New York bankruptcy, or even walking away. By contrast there isn’t much advice for homeowners who are barely above water. It’s unfortunate because it’s becoming somewhat more common since the crash ended several years ago. The economy is improving, people are paying down their mortgages, and real estate values are rising enough to put homeowners back into positive equity.
Many of these homeowners might wonder whether it’s worth it to stay in a low-equity home, especially when, after factoring in sales costs, the deal might leave the household slightly worse off. Here are a few thoughts from the perspective of a New York bankruptcy lawyer:
- Generally, if you’re house-rich but cash-poor, you’re better off selling in the long run (particularly if you’re younger). The issue is more likely to be of opportunity costs: It’s not how much money you lose in selling, it’s how much money (and other things you may value) you gain by staying put.
- Moreover, even if the cost of selling puts a household underwater, that just highlights the point that the line between positive and negative equity isn’t the most important thing in homeownership. Equity only really matters when you have a substantial amount of it.
- If your income is flowing more to mortgage payments rather than current household needs and future saving, you’re one adverse shock away from bankruptcy anyway. In that case you’re probably better off selling.
- Smaller homes usually come with hidden savings: mortgages for sure, but also insurance, taxes, heating, cooling, and utilities. Over time, the savings from these can be quite substantial.
- There are certainly benefits to staying put, but they almost always have nothing to do with the house itself. Many homeowners prefer the commutes, schools, and other benefits communities provide them.
- Consequently, it’s crucial to consider the intangible benefits of staying versus moving. Being stuck in traffic or crammed into a subway car is a cost of living further from work. Likewise, loud neighbors and neighborhoods substantially reduce people’s quality of life in very subtle ways. A good night’s sleep is often very much worth the money, as is avoiding commuting inconveniences.
Beyond these thoughts it’s really just a matter of budgeting: finding another neighborhood to live in at affordable prices.
If your financial situation has deteriorated beyond the point that moving can solve, it’s time to talk to an experienced New York bankruptcy lawyer.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced business bankruptcy lawyer Bruce Weiner for a free initial consultation.
