Options When You Can't Make Your House Payment - What Do You Do?

"Upside down" has taking on a life of its own. It used to mean what happened when you hung from the bars at school, or stood on your head.  But now everyone knows it means you own more than your home is worth.

That is not inherently a problem if you can keep making your payment.  Eventually your homes value will go up again, lessening how much you are upside down. But it is a nightmare if you want to sell your home, or can no longer make you mortgage payment. Maybe you lost your job.  Or your loan adjusted to a higher interest rate making your payment out of reach. Whatever the reason, if you can't make your house payment, it's a scary, desperate, lonely feeling.

My first piece of advise is to talk to an attorney who specializes in foreclosure, short sale and loan modification advise. You want to find out where you stand. The attorney will assess the legal and financial risk for your various options, and the repercussions of the path you chose to take. It will cost you about $200 for a one hour consultation, but it will be worth it. You may also want to talk to an accountant, to find out your tax repercussions.  Trust me, it can get complicated and only a qualified pro can give you accurate info.

Then you will decide on one or more of the following options - all of which are free.  If someone is charging you, you may want to reconsider:

YOUR LENDER: Clearly, this is where you start.  See if they have any help for you.

CALIFORNIA STATE PROGRAMS: Go to www.KeepYourHomeCalifornia.com (888) 954-5337. I hear varying results from homeowners who have tried these programs, but one of them might work for you.

• Unemployment Mortgage Assistance Program - If you are receiving unemployment benefits, you may qualify for mortgage help up to $3,000 a month.
• Principal Reduction Program - Up to $50,000 in principal reduction if you have had economic hardship and severe decline in your homes value.
• Mortgage Reinstatement Assistance Program - Provides up to $20,000 to help you catch up on missed payments, back taxes and lapsed insurance
• Transition Assistance Program - Up to $5,000 towards relocation after a short sale.

FEDERAL PROGRAMS: www.MakingHomeAffordable.gov (888) 995-4673. Again - it seems like the qualification eliminate many people, but it's worth a shot.

• HAMP: The Home Affordable Modification Program will lower payments to 31% of pretax income.
• HARP: Home Affordable Refinance Program allows a refinance to a more affordable mortgage.
• HAFA: Home Affordable Foreclosure Alternative helps people leave their home via a short sale or deed-in-lieu of foreclosure.

SHORT SALE: You will list your home with a Realtor, and accept an offer "Subject to the lenders approval of a short sale". You then submit your accepted offer to your lender, along with a giant stack of your financial papers, plus an application for the short sale.  Then you wait anywhere from a month to 5 or 6 months. With luck, if your short sale is approved, and your buyer is still interested in the purchase, then you close escrow.

Generally, homeowners choose to do a short sale because it's easier on their credit rating than a foreclosure.

FORECLOSURE: In some cases, letting the bank take back your home in a Foreclosure carries less future risk for the homeowner.  It will hit your credit harder, but may be a better alternative for you tax wise.  This is why you must get legal and tax advise - you want to make the proper decision on which direction to go. You must know the consequences to make the right decision.

Whatever you do, even it is to do nothing, it helps to know your options - and your consequences.

What else have you found helpful?