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L.A. Mortgage Foreclosure Watch: Half of Under-40 Homeowners Underwater

Blogs from September, 2012

Help Drowning

A new report by real estate data source Zillow indicates that almost half of all homeowners under the age of 40 are underwater on their homes. Woodland Hills bankruptcy attorneys aren’t shocked‚ but still such statistics are quite troubling.

According to the latest report‚ the percentage of homeowners who owed more on their home than it was worth did fall slightly – from about 31.5 percent to about 31 percent. But of the estimated 15 million homeowners who were reported to be underwater in the first quarter of the year‚ a disproportionate number were under age 40.

In fact‚ under-40 homeowners were twice as likely as older borrowers to be underwater. What this has done is create a situation that has hindered economic recovery because we have so many people who are forced to stay in their homes. These are homes that they purchased to be “starter” homes‚ but not have no choice but to stay – or walk away.

The good news for those who are in over their heads with mortgage debt is that bankruptcy can actually help.

Now unfortunately‚ a bankruptcy won’t close the gap between what you owe and what the home is worth — although an experienced attorney may be able to use it as leverage to force a loan modification. This is unlikely to change‚ considering efforts to improve the law were unsurprisingly met with resistance from bankers and lenders‚ who have successfully managed to have the legislation tabled for now.

However‚ there are still a number of ways that you can benefit from a bankruptcy if your home is underwater.

  • A Chapter 13 reorganization may be of special interest to you if you are behind on your payments‚ regardless of whether you are underwater or not. This would allow you a chance to catch up on your payments without interest. Typically‚ it gives you a five-year window to get your finances together.
  • Your home equity loan may be “stripped off.” That is‚ if the value of your home is less than the amount of your initial mortgage‚ then your home equity loan or second mortgage is then considered unsecured debt. What this means is that it can be effectively discharged in a bankruptcy.
  • If you can eliminate or reduce other debts‚ you’ll have more money available to pay your mortgage‚ which will allow you to get back into the black much sooner.
  • A bankruptcy can halt a foreclosure long enough for you to be able to secure a loan modification. This is where the bank agrees to negotiate a lower principal (one that more closely resembles your actual home value) so that your payments are once again affordable. This is becoming more of an option for many Californians‚ thanks to the $26 billion foreclosure abuse settlement inked earlier this year by the state’s attorney general and the five major banks. However‚ if you choose this option‚ take heed: You may need to do it soon because the federal Mortgage Forgiveness Debt Relief Act‚ which relieves you of having to pay taxes on the “forgiven” amount‚ is expiring at the end of the year.
  • Lastly‚ a deficiency judgment that results from either a foreclosure or a short sale may be dischargeable in a bankruptcy.

If you are underwater on your Woodland Hills home and are considering bankruptcy‚ we can help you sort through your options.

If you are facing bankruptcy in Woodland Hills‚ contact Cal West Law to schedule your free consultation. Call (800) 568-0707.

Additional Resources:
Half of mortgage borrowers under 40 are underwater‚ By Les Christie‚ CNNMoney

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