topic Re: what happens when you sell for less than you owe in Mortgage Loans

what happens when you sell for less than you owe

SeanAndrews — Mon, 10 Jan 2011 22:19:53 GMT

If you do not do a short sale, what typically happens when you owe like 30k more than what you know your house would sell for? I just bought my house 4 years ago so I havent even made a dent in the principal yet, pluys the housing markey tanked in the meantime, so I will definitely lose money.

Re: what happens when you sell for less than you owe

Anonymous — Tue, 11 Jan 2011 02:03:19 GMT

@SeanAndrews wrote:
If you do not do a short sale, what typically happens when you owe like 30k more than what you know your house would sell for? I just bought my house 4 years ago so I havent even made a dent in the principal yet, pluys the housing markey tanked in the meantime, so I will definitely lose money.

I believe you would have to make up the difference out of your pocket.

Re: what happens when you sell for less than you owe

SeanAndrews — Tue, 11 Jan 2011 02:20:09 GMT

And if you don't have any money to make up that difference, you basically can't sell the house then? (unless you somehow get a short sale or just quit paying so that they foreclose?)

Re: what happens when you sell for less than you owe

Anonymous — Tue, 11 Jan 2011 02:34:36 GMT

@SeanAndrews wrote:
And if you don't have any money to make up that difference, you basically can't sell the house then? (unless you somehow get a short sale or just quit paying so that they foreclose?)

IMO pretty much yes.

I do not see your mortgage holder giving a free and clear title to the new mortgage holder with a 30K debt differential in payment.

There may be some program out there since the economic downfall that may be able to assist you. It may be worth looking into. I have no experience in any of the programs available and not even sure if anything would pertain to your situation.

Hopefully some one will chime in with much better news for you.

Re: what happens when you sell for less than you owe

Lel — Tue, 11 Jan 2011 04:33:43 GMT

@SeanAndrews wrote:
If you do not do a short sale, what typically happens when you owe like 30k more than what you know your house would sell for? I just bought my house 4 years ago so I havent even made a dent in the principal yet, pluys the housing markey tanked in the meantime, so I will definitely lose money.

The answer depends on the recourse laws of your state. If you live in a non-recourse state, then generally speaking the only remedy for the lender is foreclosure. That is, they can only take your home and can't go after other assets. One major exception to this rule is if there is a second non-purchase money loan on the property - for example, a home equity loan that was taken out a year after purchase. Non-purchase money second loans are often treated as recourse debt, so the lender can sue you for the unpaid balance of the loan.

In recourse states, it may be possible for the lender to sue you for the difference between the auction sale price and the balance owed.

A short sale has advantages over foreclosure. First, in a short sale, the lender typically forgives the balance owed on the loan. Thus, there's no worry about whether the lender might sue you for the unpaid balance. In the past, short sellers used to have to pay income tax on the forgiven amount, but changes in the law eliminated this tax burden for the past couple years. Second, after a foreclosure it may not be possible to get another mortgage for as long as 5 years after the foreclosure is complete. On the other hand, the waiting period after a short sale is only two years, and if you are not delinquent at the time of the short sale, there is no mandatory waiting period before getting another mortgage. However, because of a drop in credit scores (which will happen with either a short sale or foreclosure) and the lenders' own underwriting guidelines, it may not be possible to get a mortgage even with a non-delinquent short sale. But still, the penalties are not as harsh.

As with foreclosure, if there is a second lien on the property, a short sale becomes more complicated, because it is the second lienholder who stands to lose the most.

Re: what happens when you sell for less than you owe

Anonymous — Tue, 11 Jan 2011 18:09:40 GMT

To answer your question directly, if you need to sell you have three options.

Sell the home for enough to pay off the balance owed and the realtors fees (around 6-7% typically)

Sell the home for less and come up with the cash

Arrange a short sale.

There is no way around that. They can not transfer the title out of your name until the lien is satisfied no matter what.

The only other option (and this is generally only if your mortgage is at a CU or local bank) is to see if they will allow you to take out a personal loan for the amount of the deficiency. This usually only happens when someone local owns the loan and you can go in and kind of plead the case. This would require solid income, FICO, and DTI to even consider it and it usually a no. I have heard of cases of people getting it done this way when they would not have normally been able to get a personal loan for the difference, but only on a very limited and almost always local basis. Again, if your bank is local and you can actually plead your case, you stand a chance of getting them to see that selling the property and transferring the balance over to you on a personal note is less costly than a foreclosure/short sale for them. Again, this is rare, and there is no way if the need is based on financial issues. You do have to at least marginally be able to qualify for the loan...

Last, if you need to leave the home, is renting it out an option?