Recouping A Down Payment on Upside Down Mortgage

We are planning on selling our house which was appraised at $250,000 We bought the house for $355,000 and we put $100,000 down. We owe $220,000. Is there a way w can recoup our down payment?

3 Answers

If you sell your home now in the down market, no - unfortunately the extra down payment is lost because the value of the collateral (the house) is not what you originally paid. This is very similar to selling a stocks that you purchased at a high price and are now at a low price - there is no way to pull that extra value back out of the stock market, or the house, at this exact time.

If you want to move, and are in a market where the going rent on a property like yours would cover your payment, it may make sense to rent out your home for a while. That way, you can evaluate the return on selling it in a few years when the market has settled down - and maybe recoup some of your losses.

If you must sell now, you will only get the current market sale price for the home - nothing more, nothing less. Apologies - probably not what you wanted to hear.

Even though a home is an 'investment' that is used (lived in), it is ultimately still an investment. By definition an investment is something that can gain or lose value. Unfortunately in this case the value has gone down, thus the fact that your home appraised for less than what you purchased it for.

The only way to 'recoup' down payment would be to sell the home for at least the price you paid for it. However, if the market is lower now, which from the appraised value it appears to be, you would have a difficult if not impossible time selling for $355,000. The only other option would be to stay in the home until (if) property values get back to a point where the home is worth at least the $355,000 that you paid for it. Unfortunately that could take a number of years, depending on the area of the country you are in, and the local area where the home is located.

I assume from your question you are asking if there is any recourse against your bankfor the downpayment money. You may have heard of short sales and wonder if that would apply in this case. A short sale however typically only applies when you actually owe more than what the home is worth. Additionally they are difficult to complete, and will adversely affect your credit report and score, even if it were possible in this case. A bank or lender will not accept a short sale and allow you to gain on the sale, ie - they would not accept a lower payoff on their loan and allow you to walk away from the closing table with anything, short sales are done on properties that are underwater. While this certainly isn't the answer you were looking for, place yourself on the other side of the table, if the property had increased in value would it be fair for the bank to demand some of the new additional equity because the investment had become positive? Unfortunately many didn't realize when buying a home that home prices *don't *always go up, and if they go down you could lose money buying a home.  

What you 'need' or what you 'want' is not necessarily what you will 'get'.  Unfortunately, the only way to recoup your initial investment is to hold onto the house until it regains its value and sell it at that point in time.  Even the $250,000 appraisal is only an opinion of value and you may or may not have an offer that equates to that level.  And even if you do, there is really no guaranty that the house will appraise for $250,000 upon the execution of the contract. 

The down payment is gone.  The lender has to be made whole with the sale proceeds.  And you may be cutting it fairly close with a lower offer when you consider Real Estate commission & other selling expenses. The decline of property values has not only affected people who do not pay, but also those who do pay.  If you must sell do to re-location, job loss, or some other similar reason, then selling it to no longer have the mortgage obligation is really the main consideration.  If you are simply looking to buy another home in the area, it might be wise to consider whether or not selling your home now is the best option.

But, if you are going to sell now, you are NOT going to recoup the down payment.