Eight options if you're underwater on your Kansas City mortgage

Owing more on your Kansas City home can cause an enormous amount of stress. Your option to move or live more cheaply become limited. Sadly, it's an option that's largely closed off to people who are underwater on their Kansas City mortgage. Unless they have cash to cover the difference between what their house will sell for and what they owe, they're pretty much stuck. Here are six options for Kansas City people in that situation.

Except for option number one, you'll definitely want to get legal advice well in advance of actually doing any of these. Situations differ and the rules are different in different in Kansas and Missouri. In particular, the option to just "walk away" from a mortgage is not available in every state! There are tax consequences to doing that, and to several of the other possibilities. A consultation with a lawyer could save you tens of thousands of dollars.

With that proviso, here are the options I recommend:

1) First try to do a Refinance before Your Credit Spiral Downwards

That is right. Most people forget the first option. Try to refinance into a lower rate before the credit suffers. If it is too late to refinance there are still options.

Who know maybe your credit is not has bad as you thought. This is a cheap option and if it works, presto, the stress is relieved. To checkout your Refinance Options contact Dan Henderson from Citywide Mortgage. Dan can be reached at 785-979-3631 by phone or dan@MrKCMortgage.com by email.

2) Suck it up and live in Your Kansas City Home

If your house still serves as shelter and you can still afford it, there's no particular reason that you can't just go on living in it, pretty much without regard to its value versus what you owe on the mortgage.

This may be the most expensive option: You can't take advantage of the cost savings of moving to a cheaper place, plus you're putting significant amounts of capital into an investment that might never give you a good a return. Still, as long as you can make the payments, this is probably the default option, and it's not necessarily a bad one. Eventually--no matter what happens to the real estate market--you'll be above water on the mortgage. (In fact, eventually you'll pay off the mortgage and own the house free and clear.)

If you need help calculating the value of your current Kansas City mortgage, checkout our FREE Home Evaluation Tool.

3) Rent out your Kansas City Home (or maybe 1 room)

If you can rent the house for enough to cover the expenses of ownership, then you can move into a cheaper place and live there. In fact, even if the rent doesn't quite cover the costs, you can still come out ahead, if you can find a place to live that's enough cheaper (and reliable tenants).

Less drastic than that, you could rent out a room. That could make staying in the house as economical as moving someplace cheaper. In fact, there's no need to stop at renting out just one room--if you have a big house, you could potentially rent out two or three rooms. At the far extreme, you could move into the basement and then rent out the whole rest of the house to another family. Not what you had in mind when you bought it, but perhaps better than losing the place to foreclosure.

I have even see people rent out their garage to a neighbor to store a boat and a basement as storage,

Maybe by choosing this option, you could hold off enough time to get back on your feet.

4) Maybe a short sale is an Option with your Kansas City Home

This is where you get the bank's permission to sell the house for less than the balance due on the mortgage. Sometimes the bank will settle for the sales price and wipe out the debt. Other times they still expect you to pay part or even all of the difference--the balance due is just converted into an unsecured loan. Even in the latter case, you at least owe a lot less money. (Of course, you also have no place to live.)

A good loss mitigation consultant will fight for you. Their job is to show the bank that taking a loss in a short sale is a much less loss then from a foreclosure. A good consultant will be able to review your options and recommend if a short sale is a good option.

We have been very successful in negotiating short sales favorably for our homeowners. The 3 most common problems in attempting short sales in Kansas City are 1) Not keeping the transaction arms length 2) Not completing the paperwork correctly and 3) Hiring a real estate agent with little to no short sale experience.

If you need help, checkout our short sale webpage: Stopping a Foreclosure

5) Renegotiate Your Mortgage with a Loan Modification or a Loan Forbearance

This covers a lot of ground. If your lender agrees, pretty much all the terms of your mortgage are negotiable--the interest rate, the number of payments, even the balance due.

The federal government is pushing several different plans to adjust the terms on mortgages to make them affordable. One that I've read about involves moving the rate down to market rates and then adjusting the balance down to no more than 85% of the house's current value. That might make the house affordable to keep. It might just make it affordable to sell.

If there was a temporary problem in making payments (due to something like illness or unemployment) that has now been solved, it may be possible to roll all the missed payments into the balance and start fresh. This is called a loan forbearance.

Want to request a loan modification or loan forbearance, request a Free Financial Form.

6) Walk Away from Your Kansas City Mortgage

Although I do not recommend this, I see many Kansas City homeowners do this option. With the laws written to provide many options, walking away seems like a poor option. Many people choose this option probably due to the stress. My first recommendation is consult a loss mitigation consultant like myself (there is no charge for a consultation). Lets first try to negotiate. Even negotiating a deed-in-lieu, where the bank agrees to take the deed and forgive the balance owed on the mortgage is a better option.

The way to do this is to:

Offer the bank a deed-in-lieu
Stop making payments
Continue to live in the house

This gives you a certain amount of leverage, because taking your offer saves the bank the trouble of foreclosing (and the risk that you'll trash the house the day before they foreclose). It also (since you're living rent-free until the bank ether agrees or forecloses) gives you a chance to save up some money. (Save it in a different bank!) That's going to be important: You're going to need it to find another place to live, and your access to credit is going to be limited for quite some time if you try this option.

7) Maybe a Bankruptcy is an Option

Especially if a lot of your assets are in retirement plans (which you generally get to keep),bankruptcy is one option for households with an untenable cost structure.

Yet again, check with a lawyer. There are certain things that you get to keep in a bankruptcy, but they vary from Kansas and Missouri. Making the right moves before a bankruptcy filing can save you thousands of dollars. For example, the tools of your trade are usually protected, so you wouldn't want to sell them before the bankruptcy filing--you'd be turning a protected asset into something that's up for grabs.

8) Sell Your Home During Redemption

I'm sorry for the Missourians. This option is not available in Missouri.

In Kansas, a homeowner can sell their home after it has been foreclosed. The period of time is called the redemption period. If the home can be redeemed at the court house for $100,000 and you have a buyer for $150,000, you can actually keep the difference. When exercising this option I would recommend hiring professionals.

Depending on your lender there maybe more options. The earlier you contact a loss mitigation consultant the more options you will have to work with. If you or someone close to you is behind on their Kansas City mortgage, lets get together. The earlier, the better.

Let us know what you think or add to our blog by writing a comment.

Blog post written by the Dowell Taggart Team of RE/MAX Best Associates

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Eight options if you're underwater on your Kansas City mortgage - Is a Short Sale an Option?