Rolling Negative Equity in Your Home

I have an 80/20 loan now. I want to buy a new house. My present home will only sale for the 80 part. Can I pay the 20 part with the new home balance?

1 Answer

There's really no way to "roll" negative equity from one home into the purchase of another. There have been a lot of questions like this one coming in as homeowners struggle to find ways to, well, remain homeowners.

If the value of your home has fallen to the point where it cannot be sold for at least the amount owed, the owner is faced with the dilemma of how to handle the situation. One possible avenue is to ask the lender(s) involved to take less than they are owed to "settle" the debt, often leaving the original owner off the hook for the balance, or shortfall. This is known as a Short Sale.

Many lenders holding 2nd mortgages on their books are finding that they are essentially now "unsecured" loans due to the reduced equity scenario, and will accept a very low amount, rather than risk getting nothing after a foreclosure.

When there are no buyers and the owner falls behind, the lender(s) will usually **start foreclosure **proceedings. Owners seeking to stay in the home may elect to file for Chapter 13 Bankruptcy under which foreclosure will be stopped, and a 36-60 month repayment plan put in place by the bankruptcy trustee.

It should be mentioned that most lenders will view ANY default as a very bad credit issue and will usually preclude that particular borrower from obtaining another mortgage for a period of up to 4 or more years until such time has passed & the borrower has had the ability to prove through other types of tradelines that they have "recovered" and are again worthy of a new home loan.