4/11/2005
Advice from Nashville's leading Financial Aid Advisor Dave Ramsey
Dave Says
By Dave Ramsey
Author of:
Financial Peace and
The Total Money Makeover
"Mortgage company won’t allow them to sell the house!"
Dear Dave,
My wife and I recently moved to Michigan. We still own our old house in Georgia.
We still owe about $122,000 on our first mortgage on that house. We also took
out one of those 125% mortgages to allow us to do debt consolidation and give us
extra cash. We owe about $34,000 on that second mortgage. So, we now owe about
$156,000 on the house and it’s only worth about $150,000. We’ve been trying to
sell the house for about six months, with no luck. We’re still paying the
mortgages on that house plus we have a mortgage on our house here in Michigan.
We’re getting to the point very soon where we won’t be able to make both of
those mortgage payments. What should we do?
Chad in Muskegon, MI
Dear Chad,
You’re now a living example of why you should never take out a 125% mortgage
under any circumstances. There is no way that doing this would ever make any
sense at all.
I recommend you call the company that holds the second mortgage on your Georgia
house and tell them where you are. Let them know that you’re getting ready to
hand them the keys unless they’re willing to work with you. Tell them that, at
the moment, they have a partially-secured second mortgage for $34,000 of which
around $10,000 or more is unsecured. You can make payments on a $34,000 loan,
but you can’t make the payments of a $156,000 loan, which is the total of your
two mortgages on that house. Ask them to admit that you don’t have a
collateralized loan, which they already know. Suggest to them that they allow
you to sell this property for less than $156,000 and you will sign a note for
the difference. For instance, if it sells for $136,000, the mortgage companies
get all of the proceeds and you sign a note with them for $20,000. See if you
can get them to sign a partial release under those circumstances.
If they’ll do that, you can reduce the price of the house and put an “Owner
Desperate” sign in the yard to sell that house. You’ve probably got about a
50\50 chance of them accepting this kind of arrangement.
Another idea would be, if your credit is still clean at this point, to go to a
local credit union and borrow $15,000 or $20,000 on a signature loan to pay down
this second mortgage to the point where you can sell the house for enough to pay
it all off. However, if you go that route, I wouldn’t send the money from the
signature loan until you’re ready to pay the house off altogether. That way you
aren’t stuck with yet another payment until the house sells.
-Dave
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