Fewer seriously underwater homes in 2014

The collapse of the real estate market a decade ago did more than make it difficult for homeowners to sell their property. In addition to causing a crash in home values and helping propel the U.S. and world economy into the most severe recession in generations, it left millions of Americans “underwater” with their mortgages.

The term was applied to borrowers who owe more on their mortgage loans than the value of the homes that secured the mortgage. This meant that if a homeowner needed to sell their home in Nashville, they could have been left with a substantial deficiency balance after the sale.

A borrower could have been left with $25,000, $50,000 or more that they still owed on their mortgage after they sold their home and in many cases, their lender would attempt to collect.

For many seriously underwater borrowers, with whom lenders typically refused to extend loan modifications, simply walking away from the property was sometimes their best economic option. They could then file a bankruptcy and discharge the debt, leaving the lender to deal with the distressed property after the foreclosure.

RealtyTrac has reported that the number of seriously underwater properties has begun to subside, as real estate values have started to recover. However, there are still more than 7 million of these properties in 2014, which RealtyTrac defined as loan balances 25 percent above their market price.

Nashville is doing comparatively well, with 70 percent of distressed properties with positive equity. But that still implies that 30 percent are underwater. If you are saddled with an underwater loan as well as other debts, and you need to sell the property, a bankruptcy may provide a solution by eliminating any remaining deficiency balance.

Housingwire.com, “Seriously underwater properties decrease 2.2 million in 2014,” Trey Garrison, January 22, 2015

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