Financial Q&A: How to unload real estate following a flood

Submit your question to Steve Dinnen at: money@csmonitor.com

Q: We relocated to California from Iowa in October 2007 because the buyer of our house was all set to close. But after we had moved, the deal fell through. We have had no luck selling the house and cannot rent it to cover the entire house payment. Now we are dealing with the flood in Iowa. We are considering giving up on the Iowa house [allowing foreclosure]. Is that possible? I've got to feed my kids and food and gasoline prices continue to rise. Is there another way?

C.W, via e-mail

A: With the caveat that you should seek legal advice, Jeffrey Cribbs, a fee-only planner in Oak Park, Ill., says that most home mortgages are recourse loans. This means that the residence is collateral for the mortgage loan, and if the value is insufficient, the lender can go after other assets. California is a nonrecourse state, meaning the lender cannot go after other assets on a mortgage loan used for the original purchase.

"So I think the best approach is to try and work out a short sale for the property in Iowa," says Mr. Cribbs. This means the house will be sold and the lender may or may not get what you presently owe.

Talking to the lender needs to happen now, he says. Waiting or not contacting the lender is a big mistake. You can find help at the state-authorized Iowa Mortgage Foreclosure Hotline at 877-622-4866. They've fielded thousands of calls from homeowners in the state following the floods in June.