Do You Owe More Than Your Home is Worth?

Are you “Upside Down” or have Negative Equity?

The solution to this problem is common these days, and it’s called a “Short Sale” or “Short Pay”.

The other obvious, but often overlooked solution is to simply sell the property and bring in cash to close. For example, if you owe $100,000 and sell for $90,000 and incur $5,000 in transaction expenses, you’ll need to bring in $15,000 to release the lien (bank loan) and get the property sold. The upside to this is you’ll fully protect your credit, as you have at that point fulfilled your obligation to the mortgage lender (assuming prepayment penalties, if any, have been satisfied, etc.).

Assuming cash-to-close is not an option, you’ll need an experienced realtor like myself who can handle a short sale. Note this is complex, and partially beyond my control – because I need to negotiate with your current mortgage lender to accept less than what they are owed. If all payments are on time, the bank may not have any incentive to do this.

Furthermore, you should be advised that one cannot simply borrow $100,000 and expect the bank to accept $50,000 in return without a fight. Practically speaking, a short sale involves showing the bank why accepting less than what’s owed is superior to the money they will lose from having to foreclose on the property. This can cause a “deficiency judgement” or 1099 for “forgiven loan proceeds” from the bank in addition to credit damage, though negotiating through this is part of my services.

Worth a mention are alternative options such as selling the property subject to existing financing left in place (“Subject to”, lease-option, “land contract” or “wraparound mortgage”) options. There may be buyers looking for a property like yours that find the current loan acceptable, as long as they can take it over. That said, if your loan is adjustable, you’re very likely to obtain a short sale, and less likely to find a buyer willing to take on the terms given.

If you are curious, or serious about selling your home, let me know your situation and I’ll give you some options to consider!