We Tried to Sell Our House With a Short Sale But It Never Sold. Should We Let it Go to Foreclosure? – JoAnn

“Dear Andy,

We have been in a bad mortgage for 7 years now where you only pay part of the interest and the rest gets tacked onto the principal well, we took the loan out for 347,000 but now owe 460,000. which the house isn’t even worth. For 4 years now we have been trying to get a mortification and were denied everytime. We put our house up for short sale a year and a half ago and was never able to sell it. Well this is 4 years later and we just can’t do it anymore, we tried to hold on but we just can’t anymore. We can’t afford the monthly payments. We also have about $15,000 in credit card debt.

Should we proceed with foreclosure or do we go with bankruptcy? Thank You.


Dear JoAnn,

Negative amortization loans might be the most toxic of all mortgage products ever introduced to market. They were created as a tool for investor’s to get in and out of real estate investments quickly. The investor saved on interest and as long as the property sold quickly and the value continued to climb, they were ok. The problems started when they began pitching these loans to homeowners that had plans to live in a home long-term. If the homeowner was unable to refinance in time into a conventional loan or the value drops, things went very bad, very quickly.

Modifications are very difficult to obtain with a neg-am loan. I believe the reason for this is that the majority of these loans have borrowers that were simply never qualified to borrow that much money in the first place. Now when the lenders sit down to review them for mod, it’s mathematically impossible to modify the terms to an affordable level.

When they do modify these loans, the monthly payments almost always go up, and it’s usually by a substantial amount. In order to qualify for a modification with a neg-am loan you will need to show a very healthy monthly surplus, showing the ability to afford higher payments, because they very rarely ever come down.

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It’s hard to say for me whether you’re better off filing bankruptcy or just letting the home go to foreclosure. You should go speak with a local bankruptcy attorney (or two) to learn how that option will help you and what all the downsides will be. Only then will you be able to make a decision between the two.

You mentioned that the short sale option didn’t work for you. Was that because you couldn’t find a buyer or because the lender refused to approve it? If the reason was not finding a buyer, than you still may have the short sale option available. The answer…. keep dropping the list price. It really doesn’t matter, especially when you can show the lender a systematic approach where you started at market value and reduced from there. It’s the same market they’ll have to sell the home in if they foreclose, so it just may be worth another shot.

Good luck and if you ever have more questions or would like to keep us posted just use the comment section below. I’m subscribed to this post and will do my best to respond promptly.

Best Regards,

Andy is a licensed real estate broker in Massachusetts and is the founder of Northeast Properties in Norton, Massachusetts. His brokerage is designed to help homeowners in today’s difficult real estate market, specializing in short sales. Andy speaks with Massachusetts homeowners every day, helping them to address their questions or issues with short sale or loan modification. He enjoys helping consumers arrive at the correct solution to their problem, and believes that the only way to correctly do that is by presenting them with all of their options in an un-biased manner.

If you have a mortgage, short sale, real estate, or loan modification question you’d like to ask just use the online form. I’m happy to help you totally for free.

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