If your home's value has declined since taking out your home equity loan, you're underwater. The lenders still want their money, even if there is no equity. Foreclosure does not always wipe out the responsibility to repay the debt. In some states, the lender is able to sue the borrower for the loan balance plus interest and legal fees. Like other creditors, lenders are open to negotiating a settlement.
Contact the lender to negotiate a lump-sum settlement or payment plan. Lenders are often willing to settle equity loan debt for a fraction of the balance. If the home is foreclosed, the lender might walk away with nothing. You can start by offering 5 percent of the amount owed and negotiate from there. If you need help with negotiating, a HUD-approved foreclosure prevention counselor can advocate on your behalf.Step 2
Negotiate a home equity loan modification with the lender. A loan modification permanently adjusts the terms of the loan to make it more affordable. The lender may agree to adjust the interest rate, length or monthly payment amount. Requirements for a home equity loan modification vary among lenders. In most cases, you will need to suffer a financial hardship and demonstrate the ability to begin repaying the debt.Step 3
Ask if your lender participates in the federal Making Home Affordable program. Through the program, struggling homeowners can qualify for loan modifications with a second mortgage. If you qualify for a loan modification on your first mortgage, the separately named Second Lien Modification Program can also help modify your home equity loan. A list of participating lenders is available on the Making Home Affordable website.Step 4
Talk to an attorney about bankruptcy. If do not want to keep the home or the property has already been foreclosed, Chapter 7 can wipe the slate clean. Chapter 13 can help eliminate payments on a home equity loan if you are underwater and want to keep the home. Under Chapter 13, unsecured debt is viewed as the last priority. If there is no equity in the home, the loan becomes unsecured debt.
Jeannine Mancini, a Florida native, has been writing business and personal finance articles since 2003. Her articles have been published in the Florida Today and Orlando Sentinel. She earned a Bachelor of Science in Interdisciplinary Studies from the University of Central Florida.