Expert: Dick Dennis - 7/5/2007

Question
QUESTION: Hi.  I have recently refinanced our home for 125% the value of the house.  It was great to be able to pay off all of our credit cards and put them in one place for a much lower rate.  Currently, we have two mortgages.  The first mortgage is for the whole appraised value, and the second mortgage is a loan amount that we still needed, and went over the actual value of the home.  Since taking out this loan, the marked hasn't been very good, and our value has gone down below what it was originally appraised for.  I was wondering if my husband and I were ever to try and move, will we have to pay off that remaining amount AND the entire second mortgage!  We would never be able to, so I was wondering what would happen.  Are we completely stuck, or are there options available to us? Thanks so much for your time.

ANSWER: The last I heard, Michele, banks and other real estate lenders were not giving out free money. Yes, of course, you are expected to repay every penny of those loans you procured as mortgages. There is one exception: If you try and sell your property but cannot get anything close to what you owe on it, then you better hope the lenders will allow a "short pay." Talk to your favorite Realtor about what it means. It is a complicated thing that not every lender will agree to do. Otherwise, I recommend you stay right where you are for the next three to five years, wait for the value of your property to rise, and continue to make payments on those mortgages so you can maintain good credit. If you don't your credit would be completely ruined. When that happens you will not be able to buy a property and/or get a loan on it for a loooooong time. I do wish you well.

Dick Dennis

---------- FOLLOW-UP ----------

QUESTION: Hi!  Thank you so much for your quick response.  I understand completely that we would have to pay the amount that we owe.  I was just curious if when you have a second mortgage and the house doesn't sell for enough to cover the amount of the second mortgage, would I be allowed to keep making my mortgage payments even though I moved, or will they make me pay it off in full?  Is Short pay the only option that banks offer?  Thanks so much!

Answer
I don't know why you would want to make payments on a mortgage of a house in which you no longer live or own. Yes, you can own it and rent it out if that is what you want to do and continue to make payments on the mortgage, but the idea of a "short pay" is to sell the property to someone else, otherwise the second mortgage holder is not going to let you short pay him out. He is going to require you to continue making payments to him. Would you let someone not pay you if you lent them money?

Dick Dennis