Can I Trade My House In For a Smaller One Instead of Losing it in Foreclosure? – Hollis


“Dear Steve,

I am severly under water financially having lost a second income. Now my house is upside-down by probably $80K, both my credit cards are topped out and I owe $40K on those and I have been advised to declare chapter 7 bankruptcy. My retirement savings have plummetted because of the volitility in the market, so there is not enough there to borrow temporarily to repay the credit cards. Even if I declare bankruptcy, there is still the mortgage payment that I can no longer afford.

Is there any system in place whereby one could go to a lender and ask to move to one of their smaller houses in foreclosure, pay a mortgage there that they could afford, and then short-sell the main house?


Dear Hollis,

You would think a logical solution like that would exist, but I can understand why it does not.

Between the duty to the bank investors, the pool of people owning a piece of your original mortgage and the legal and tax issues in trading down, what seems like a totally reasonable and logical solution to a difficult mortgage situation, just isn’t practical from the banks point of view.

Banks do a great job of rolling out policies for the masses and a horrible job at treating people as individuals. Just look at the mess that still exists in just trying to get current lenders to agree to rewrite or modify current loans of homeowners to avoid foreclosure. The banks swear they are doing this and it is an easy process but the word on the street is that is simply not true.

It certainly does not hurt to call up your lender with your logical suggestion but don’t get discouraged if they have no good response for you or just flat out say no.

You might just be left with letting the bank take your house back, rolling the deficiency that you will owe into your bankruptcy and let’s move on. Talk to your bankruptcy attorney about the best way to handle this. If you don’t have a current bankruptcy attorney, click here to file bankruptcy or get a free bankruptcy consultation.

As I’ve always said, logic and creditors don’t mix.


You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

Do you have a question you'd like to ask me for free? Go ahead and click here.
Follow Me
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
Steve Rhode
Follow Me
See also  Fraudulent Rescue / Equity Skim Scheme Costs Dozens Over $6.2 Million

2 thoughts on “Can I Trade My House In For a Smaller One Instead of Losing it in Foreclosure? – Hollis”

  1. Steve: My home loan is under review with BOA’a “Making Home Affordable” program. The news says that this program has only helped 170,00 people of millions that have applied. Do you know the true status of this program – or – am I SOL on a modification? I was current on my payments but it would have been near to impossible to make my mtg pymt much longer. The “temporary” payment is doable and I’ve not missed any. If rejected by BOA what’s the likelihood of HUD extending any modifications? HELP

    • Miranda,

      If you just look at the statistics, they are not good for mods that were turned into permanent modifications. I have no crystal ball to predict what will happen. If you have not done so already, call a free HUD Housing Counselor and talk through the process with them.



Leave a Comment