How to Swim Out from an Underwater Mortgage

Financial advisor Dwan Bent Twyford survived the financial nightmare millions dread.

Shortly after her divorce her finances were a mess. She took odd jobs as she struggled to pay the bills and to support her daughter.

“I waited tables, I tried to take on some sales positions,” she says. “And then I found my way into real estate.”

Searching for a job that would allow her to raise her daughter, without placing her in day care, Twyford bought a foreclosed home in Florida, renovated it, and sold it shortly after, making a $22,000 profit.

“All the guys at Home Depot (Stock Quote: HD) knew me,” she says. “Eventually, they’d start avoiding me. I was basically there every day.”

Since then, she’s sold more than 1,200 houses, and now counsels those facing foreclosure.

FOR MORE INFORMATION ON “UNDERWATER” MORTGAGES, READ MainStreet Explains: Underwater Mortgages.

Underwater Does Not Mean Out of Options
“Homeowners in these situations must recognize their options,” says Twyford, whose book, How to Sell a House When It’s Worth Less Than the Mortgage: Options for “Underwater” Homeowners and Investors, is to be published in February, says. “If they intend to keep their house, they should look into loan modifications, forbearance agreements, maybe renting out their home [or rooms in their home] and short selling.”

Education can allow underwater homeowners to feel empowered, she adds. “Foreclosure doesn’t have to be inevitable.”

Loan Modification
“If you have 25 years left on your loan, you’ll want to do a modification,” Twyford says. Depending on how far behind a homeowner is on their payments, the bank may roll in a portion of the money owed. However, banks will usually approve a loan modification if they see the homeowner is taking steps that will lead to reliable payments. “They’ll want to see a homeowner get a job if they were previously unemployed, or take on a roommate, maybe rent out part of the home,” Twyford says. “They’re looking for stability.”  If approved, the bank may alter the loan, often raising the interest slightly.