What are my options for selling my home if I owe more than it’s worth – a short tale about a long sale

Today, there exist nupexels-photo-puppiesmerous choices for homeowners in need of financial change relating to their mortgage or home. The options available are determined by your desire to keep your home or not. If you wish to keep your home, are current on your mortgage but upside down (on the mortgage that is) you have an opportunity to refinance with a lower rate through the federal government’s Home Affordable Mortgage Program, which could lower your monthly payments markedly. On the other hand, if you’re struggling with keeping up payments and lowering those payments will not solve the problem then you might want to consider a short sale. 

The mechanics of how to go about doing a short sale are provided at the link below.   But here is some basic information that will help you if you are facing some financial challenges and are considering selling your home.

Although there may be a number of “good business” reasons why one would want to sell his or her home short, not wanting to be obligated to a mortgage for a home which just isn’t worth what it used to be, isn’t good enough.  No, the banks are looking for “Hardship” – good old American struggle, a compelling reason why they should consider eating that $50 or $100K short fall.  Legitimate reasons such as divorce, job transfer, long term illness, financial loss, etc. etc. are considered, but if you have $100K in savings and “just don’t want to touch that principle” they probably won’t give you the nod.  (Just as a note, I’ve found this to be true with investors in these situations as well).  As long as you can prove hardship they will generally let the short sale move forward.

Why wouldn’t they? From the perspective of the bank, in almost all cases a short sale is preferable to foreclosure.  Foreclosures cost the bank legal fees, drag on (even longer than the short sales) and often wind up in a home that just sits there losing value, perhaps abandoned for a year or two before the foreclosure is complete.


To illustrate this point, I’ve had several clients who, prior to short-selling, first tried to “give” the home back to the bank (a deed in lieu of foreclosure) all of whom were turned down and a short sale was requested by the bank.  For the banks to accept the property back (even without a fight from the homeowner), would be to incur for them all the liabilities of homeownership – insurance, upkeep and monitoring of the home, etc.  And, in the long run, the bank would not be able to sell the property for any more than the current home owner – perhaps less.

Will they let you off the hook totally if you do a short sale?  Depends.  In many cases the banks will release you from further liability on completion of the sale.  This is like the “golden ticket to Hollywood” and what we’re all shooting for in doing a short sale.  Sometimes they will ask for a monetary contribution from the seller, which is almost always negotiable, sometimes they won’t.

One of the unique qualities of a short sale is that though a buyer, making an offer, signs a contract with the owner of that home, once that is done the “seller” then becomes the bank, with the bank assuming the responsibilities of paying the fees a seller would generally be responsible for – taxes, closing costs, title insurance realtors, etc. For this reason the bank must authorize the final agreement.

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There is a specific short sale program available for homes underwritten by Fannie Mae that will, in many cases, give sellers a moving allowance (sort of a reward for keeping the home in Ok condition and not leaving with the faucets). It’s called the HAFA program (home affordable foreclosure alternatives) and can be requested by the homeowner should they find themselves in the situation of needing to sell their primary residence.

Now, none of this means that the bank won’t try to get as much money out of the home as possible. And it is not unusual during the course of the short sale (which can be anywhere from 3- 6months on average – sometimes longer) to have them order a valuation of the property more than once – particularly in a changing market.  It is also not unusual to have them request additional financial information from the seller, this is just part of the process.

There can be complicating factors to a short sale – a second mortgage, equity loans against the property, tax liens, title issues, probate issues, maybe the short sale lender has been bought out or taken over by another lender. All of these can be addressed one way or the other. Last but not least, a short sale generally has a much less negative impact on your credit.  Although it will certainly affect your credit, it should not be the 7-10 years of negative credit that will result from a typical foreclosure.

The fundamentals, no matter how complicated the details, are still the same. So, if you need assistance, are experiencing a hardship and need to sell your home a short sale is one of the options you might consider.



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