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You want to Sell Your Home but believe you Can't...What are the Options?

You want to Sell Your Home but believe you Can't...What are the Options?

by Brian Turner

Analysts are asking the question, Is Now the Time to Sell Your Home?  Right now inventories are so low that people want to buy but there are not enough homes on the market in our area.  Plenty of buyers are finding  themselves in a seller's market again.  Seller's are getting multiple offers and they can pick and choose the best offer based on their situation.   We recently had a home hit the market and within the first week received over 20 offers.  

If the real estate market is so great for sellers in Maryland, DC and Virginia, why aren't they selling?  The reality is so many believe they can't because there property is 'underwater' or 'upside down'.  Being upside down on your mortgage (VIDEO).  

So what are your options if you are underwater?  Of all the changes you might make to live more cheaply, the most fundamental is finding a cheaper place to live. Sadly, it's an option that's largely closed to people who are underwater on their mortgages. Unless you have the cash to cover the difference between what your house will sell for and what you owe, you're pretty much believed to be stuck.  Here are some options if you are in that situation.

Except for the first option, you'll definitely want to get legal advice well in advance of actually doing any of these. Situations differ and the rules are different in different states. A consultation with a lawyer and CPA can save you tons of money and headaches in the long run.

Here is my summary of the main options as I see them: 

1. Suck it up.

If your house still serves as shelter and you can still afford it, there's no particular reason that you can't just go on living in it, pretty much without regard to the value versus what you owe on the mortgage.  This may be the most expensive option.  Still, as long as you can make the payments, this is probably the default option, and it's not necessarily a bad one.   

  • Benefit: You can stay in the home.
  • Drawback: You can't take advantage of the cost savings of moving to a cheaper place, plus you're putting significant amounts of capital into an investment that most likely won't ever give you a good return.

2. Rent it out.

If you can rent the house for enough to cover the expenses of ownership, then you can move into a less expensive place and live there.  A homeowner who has a mortgage payment low enough that market rent will allow it to be paid, is able to convert their property to a rental and use the rental income to pay the mortgage.

  • Benefit: Allows homeowner to keep property indefinitely.
  • Drawback: The issues that can arise with a rental property are many, and rent often does not cover the full cost of property ownership and maintenance.

3. Short sale.

Check out this video to learn what is a short sale?

If a homeowner owes more on their property than it is currently worth, then they can hire a qualified real estate agent to market and sell their property through the negotiation of a short sale with their lender. This typically requires the property to be on the market and the homeowner must have a financial hardship to qualify. Hardship can be simply defined as a material change in the financial stability of the homeowner between the date of the home purchase and the date of the short sale negotiation. Acceptable hardships include but are not limited to: mortgage payment increase, job loss, divorce, excessive debt, forced or unplanned relocation, and more.

  • Benefit: A short sale allows the homeowner to avoid foreclosure and salvage some of their credit rating. This also keeps foreclosure off the individual's public record, and in many cases will allow the homeowner to avoid a deficiency judgment. Borrower may qualify for another mortgage in as little as 24 months (as opposed to five years for a foreclosure).
  • Drawback: Short sales can be a trying process in which a homeowner is best served by contracting with a qualified real estate agent to guide the way.

4. Modification of the mortgage.

This covers a lot of ground. If your lender agrees, pretty much all the terms of your mortgage are negotiable — the interest rate, the number of payments, even the balance due.  If there was a temporary problem in making payments (due to something like illness or unemployment) that has now been solved, it may be possible to roll all the missed payments into the balance and start fresh.

A mortgage modification involves the reduction of one of the following: the interest rate on the loan, the principal balance of the loan, the term of the loan, or any combination of these. These typically result in a lower payment to the homeowner and a more affordable mortgage.

  • Benefit: Reduces the payment a homeowner is required to make on a monthly basis and may reduce the principal balance of the loan
  • Drawback: Requires that a homeowner 'qualify' for the new payment and will often require full documentation. Lender has to be actively pursuing modifications.

5. Walk away.

In some places, mortgages are often made on a non-recourse basis — that is, the bank can take your house, but can't come after you for any balance due on your mortgage. Check with a lawyer! This is not true everywhere — and even places where it is often true it isn't always true.  

  • Benefit: The myth is you believe that if you let your home go to foreclosure you are done with the situation and you can walk away with a clean slate.
  • DrawbackThe reality is that this couldn’t be any farther from the truth in most situations. You could end up with an IRS tax liability and still owing the bank money.  If the property goes into foreclosure you may be liable for the difference of what is owed on the property versus what is sells for at auction, in the form of a deficiency balance! Please note this is state specific and in most states you will be liable for the shortfall.

6. Bankruptcy.

Check with a lawyer and CPA. 

Many have considered and marketed bankruptcy as a 'foreclosure solution,' but this is only true in some states and situations. If the homeowner has non-mortgage debts that cause a shortfall of paying their mortgage payments and a personal bankruptcy will eliminate these debts, this may be a viable solution.

  • Benefit: Does not require lender approval.
  • Drawback: If a homeowner cannot afford their mortgage payment, a bankruptcy will only stall—not stop—the foreclosure process. Bankruptcy can be costly, is damaging to credit scores, and can only be declared once every seven years.

These are the options that I can think of if you are underwater on their mortgage.  Click here to see all the options explained.  Right now in certain situations renting is cheaper.  If you are interested in learning more, please call 240-619-8326 or email info@bbtteam.com.  Do your research and make sure you make the right move for you.

Source:  WiseBread

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