I get a lot of emails from folks who owe more than their house is worth. I am going to extract a bit from one and discuss it:

New job…so now want to move - have located the perfect family home that we are working on obtaining a loan for.  The dilema is that we find ourselves upside down in our mortgage with the way the market has fallen in our area over the last 4-6 months.  Brand new, beautiful homes are now priced in the mid 300,000s here.  We have to paint and install flooring and upgrade some things before we could put it on the market in hopes of coming out close to even.  I don't know what to do at this point.  It's time for us to move and now we feel we can't.  Any suggestions? 

First, thank you so much for your notes and comments. I feel for you and I appreciate your sharing with me.

There are two things notable about your situation. One is that you are competing against new homes in trying to sell yours.

In the old days, builders were poorly financed people who would periodically get stuck when real estate turned down. Today's builders tend to be publicly traded companies. They have a lot of capital. And it may have cost them $100,000 or more per lot in the form of permits, approvals and payoffs, before they break ground on one of those homes they are selling in the mid 300,000s.

They have a problem, and it's called "stranded capital." That means they have a lot of money sunk into these houses and they will sell them no matter what. They have a pipeline of homes about to be completed, homes just started, and homes just finished. They have the financing to weather the storm for awhile. And they will do what they have to do to sell these houses.

So, your problem is that you have to make your house cheaper and more attractive than these new homes that they are selling.

You do have one advantage over these builders, though. You are upside down. That is an advantage. Because your bank will take a big loss if you lose your house in foreclosure. The bank will want to avoid losing a lot of money. So, they will be likely to deal.

You are a good short sale candidate. You may be able to get your mortgage lender to agree to a short sale. Then, you can use the 9 day sales method to sell your house. Since you will be selling below market, you may be able to get 50 to 100 people to look at the house, and several serious people to bid. That's the way to sell your house instead of letting it sit on the market like your neighbors' houses. And, no fix-up required. I wouldn't do a thing to fix it up. I'd get the short sale process rolling and use the problems that the house has, and the needed repairs, as an advantage to extract concessions from the lender and get the short sale done.

You could be out from under quicker than you think.

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