Selling home at a loss/when you're upside down?

cwhip77 · December 2010

I'm googling, of course, but a lot of the answers I've found say it might be different state to state. Anyone know much or have experience with selling a home at a loss? We need to sell our condo, soon, because we've outgrown it long ago. We're in a 1 bedroom condo (1!!!!) and our kiddo needs her own room and a big girl bed. We've held out as long as we can. Similar units in our complex have sold recently for anywhere from $7 to $20k less than what we owe on our condo. Terrible market and comps in our actual complex make it pretty clear we're going to take a hit but we can't stay in our place much longer.

So what happens if we sell for a loss like that? Do we still make payments for the rest of the amount we owe on the mortgage - does the bank allow that? I've read something about banks just "eating the rest owed" if you sell at a loss but I found that so hard to believe. Help! We're sardines needing to get out of this can!

~Lynchie~ · December 2010

Have you considered renting out your condo until the market turns around?

cwhip77 · December 2010

~Lynchie~:
Have you considered renting out your condo until the market turns around?

We wouldn't make enough to cover the cost of the mortgage/dues. The unit is small so the rent wouldn't be very much, and the HOA dues have almost doubled since we moved in so we'd lose money renting it out.

**Maggiepoo** · December 2010

My BIL/SIL just did this. They ended up selling their place for just over 10k less than they owed. They had to pay the difference at closing.

Seattle_JiLLn · December 2010

I think you have to have the money to pay off the loan unless you can take out a new one. But it would be hard to take out a loan on that since you'd have no collateral and no incentive to pay it back. I had heard once that some banks were helping people get out of these situations but my guess is that it's through a short sale. I would call your bank and ask them what they would consider. A short sale is where they agree toless and they do just eat it. But I think they have criteria you hve to look at to decide if they'll do it. A mortgage broker or real estate agent could help you. Note that if you sell for $10k less, you'll still need more than $10k to cover taxes and real estate agent fees.

LifesPeachy · January 2011

Unfortunately you have to have all the cash to make up the difference at closing.

I actually thought (or was hoping) the same thing as you not long ago- that you can just continue to make payments to your mortgage company on what you still owe- but at that point, you have no house as collateral for the bank- so the banks wouldn't allow that. Sad

The only way the bank would "take a loss" is if you did a short sale. Short sales can do some damage to your credit, can take way longer to sell your house (bc of bank approval and getting buyers willing to deal with short sales) but if you don't have to cash available to make up the difference in your mortgage vs sale price + other seller fees due at closing, such as any taxes, deed/title fees, AND 6% (average) of the sale price to go to the realtor- then a short sale might be your only option. Sometimes you aren't even approved to do a short sale.

When it comes to finding a new home, hopefully you can find a seller willing to pay all your closing costs. That will save you around $7K-$10K. Likewise, you might have a hard time finding a buy for your current home who doesn't want closing costs paid. So thats another $10K for you to have at closing. Our realtor told us this was a fairly common request in Seattle area for buyers and luckily for us we found a buyer will to pay our $10K in closing costs.Of course there is also the down payment needed for the new home.

Have you spoken with a realtor yet about options? They can answer all those mortgage related questions for you too.

I just went through all this a couple months ago when we moved to Seattle from Delaware. I owned a home there that we couldn't sell or we would've been underwater by 30K or more, so we are renting. We are taking a loss of about $250 a month but we make that up for DHs flat in England he rents out, so all together we have a bit of positive cash flow from both rentals. It makes me nervous having the rental in Delaware. A realtor is managing it but its still scary. Such as the new tenants not putting the electricity in their name until a month after they moved in and I got the $135 bill. I still haven't received a check from them yet and I doubt the realtor is barking up their tree hard enough, as much as I would at least- what does she care?

Good luck, I know how frustrating it is.

keri1013 · January 2011

Seattle_JiLLn:
I think you have to have the money to pay off the loan unless you can take out a new one. But it would be hard to take out a loan on that since you'd have no collateral and no incentive to pay it back. I had heard once that some banks were helping people get out of these situations but my guess is that it's through a short sale. I would call your bank and ask them what they would consider. A short sale is where they agree toless and they do just eat it. But I think they have criteria you hve to look at to decide if they'll do it. A mortgage broker or real estate agent could help you. Note that if you sell for $10k less, you'll still need more than $10k to cover taxes and real estate agent fees.

Keep in mind also that despite what some (not all!) real estate agents imply, a short sale will negatively affect your credit, which will of course affect what kind of a loan you would get to buy your next place.

I feel your pain, we are probably $80-100K underwater on our house. It sucks.

preston18 · January 2011

Another thing to keep in mind if you do a short sale (besides wrecking your credit) is you can't do one if you're current on your mortgage. You'll have to stop paying for several months before the bank will even negotiate.

babyaustin725 · January 2011

I don't have any knowledge really, but I'm sorry you have outgrown your place. I know we'd have a really, really hard time getting out of our condo right now. There are several units in short sale or foreclosure right in our complex, at least one in our building. We'd like to move as well, but at least we have two beds and two baths. I can imagine how difficult it is for you guys with M growing so much.

Good luck to you.

tfarabians · January 2011

I agree with pp's short sales not only damage your credit but they are really for special circumstances and must be approved by the lein holder of your mortgage. Short sales are not like foreclosures though and it does not mean you have to be behind on payments. I suggest you talk to a mortgage broker and see if there is something they can work where in purchacing your new place you can get a loan large enough to cover the existing amount owed on your old place. Either way you will have to get the kein holders approval to sell your house for less than you owe.

stacylu · January 2011

**Maggiepoo**:
My BIL/SIL just did this. They ended up selling their place for just over 10k less than they owed. They had to pay the difference at closing.

This is what I understand needs to happen. I've never heard of making payments after the unit is sold - you wouldn't really have any collateral then.Good luck Deb - I hope that you can get it sold quickly!

ETA: I should have read all the responses before I commented - they have much better advice than mine!

knockoutmommy · January 2011

Like pp said, getting a loan AFTER you short sale is pretty difficult. The only reason a bank will let you short sale is if you prove you can't pay (ie, just stop making payments) then they have motivation to short sale, and at least get some money. If you are paying, they have no reason to take less money. So after that, what bank will give you money when you've just demonstrated that you "can't" pay.

Friends of ours were able to go buy a new house before they short sold their old condo. That way their credit was still good when they got the new mortgage, and they will be in that house at least 7 years (how long a SS is on your credit) before they need another mortgage. (Think about your car situation too, since any financing you need in the next 7 years will be tough to get, or super high interest).

If you have the cash flow for that though, you likely could come to closing with the 10k additional though, so that may be a better bet.

CinemaGoddess · January 2011

Is it possible for you guys to refinance your current place, get the payments down, then rent it out until the housing market is better?

We were going to do this until we found out we couldn't because our current development is in litigation with the original developer and apparently you can't refi when you're in litigation. We're about 20k or so underwater and DH has spent a good portion of the last 18 months looking into options for us to get out of this place and move back to Seattle.

Seattle_JiLLn · January 2011

cinema_goddess:
Is it possible for you guys to refinance your current place, get the payments down, then rent it out until the housing market is better?
We were going to do this until we found out we couldn't because our current development is in litigation with the original developer and apparently you can't refi when you're in litigation. We're about 20k or so underwater and DH has spent a good portion of the last 18 months looking into options for us to get out of this place and move back to Seattle.

If they owe more than it's worth then they can't refinance for more than the current value, which would mean they'd have to pay the loan down to the current value anyway, plus be looking at a 100% finance, which wouldn't qualify for a good rate.

Seattle_JiLLn · January 2011

cinema_goddess:
Is it possible for you guys to refinance your current place, get the payments down, then rent it out until the housing market is better?
We were going to do this until we found out we couldn't because our current development is in litigation with the original developer and apparently you can't refi when you're in litigation. We're about 20k or so underwater and DH has spent a good portion of the last 18 months looking into options for us to get out of this place and move back to Seattle.

If they owe more than it's worth then they can't refinance for more than the current value, which would mean they'd have to pay the loan down to the current value anyway, plus be looking at a 100% finance, which wouldn't qualify for a good rate.

Seattle_JiLLn · January 2011

cinema_goddess:
Is it possible for you guys to refinance your current place, get the payments down, then rent it out until the housing market is better?
We were going to do this until we found out we couldn't because our current development is in litigation with the original developer and apparently you can't refi when you're in litigation. We're about 20k or so underwater and DH has spent a good portion of the last 18 months looking into options for us to get out of this place and move back to Seattle.

If they owe more than it's worth then they can't refinance for more than the current value, which would mean they'd have to pay the loan down to the current value anyway, plus be looking at a 100% finance, which wouldn't qualify for a good rate.

m&m823 · January 2011

knockoutmommy:

Like pp said, getting a loan AFTER you short sale is pretty difficult. The only reason a bank will let you short sale is if you prove you can't pay (ie, just stop making payments) then they have motivation to short sale, and at least get some money. If you are paying, they have no reason to take less money. So after that, what bank will give you money when you've just demonstrated that you "can't" pay.

Friends of ours were able to go buy a new house before they short sold their old condo. That way their credit was still good when they got the new mortgage, and they will be in that house at least 7 years (how long a SS is on your credit) before they need another mortgage. (Think about your car situation too, since any financing you need in the next 7 years will be tough to get, or super high interest).

If you have the cash flow for that though, you likely could come to closing with the 10k additional though, so that may be a better bet.

My SIL/BIL just did this. They were upside down by HUNDREDS OF THOUSANDS on their house in AZ. (The housing market is insane down there.) Anyhow, they "borrowed" money from DH's dad so it looked like they had more money than they did, qualified for another loan, bought a brand new house down the street from their current one (since the houses are now for sale for half the price of their "old" home) and then gave the money back to DH's dad. I'm not sure all the ins and outs and maybe AZ law is different somehow. Anyhow, the only problem they had was with their 2nd mortgage on their "old" home...they ended up having to settle that out (still for less than they owed). But if you don't have a 2nd mortgage, it might not be an issue. Not sure what it did to their credit - but they said something about it affecting credit for only 2 years? Obviously I don't know enough to really give advice, but hopefully a good real estate agent would. I do know they had lawyers involved as well to do this in a way that would cost them least in the end.

CinemaGoddess · January 2011

Seattle_JiLLn:
cinema_goddess:
Is it possible for you guys to refinance your current place, get the payments down, then rent it out until the housing market is better?
We were going to do this until we found out we couldn't because our current development is in litigation with the original developer and apparently you can't refi when you're in litigation. We're about 20k or so underwater and DH has spent a good portion of the last 18 months looking into options for us to get out of this place and move back to Seattle.

If they owe more than it's worth then they can't refinance for more than the current value, which would mean they'd have to pay the loan down to the current value anyway, plus be looking at a 100% finance, which wouldn't qualify for a good rate.

It depends on the loan they have. There are a couple of federal programs out there to help people underwater on their mortgage to get refinancing. We were eligible for a complete refi until our development went into litigation.

keri1013 · January 2011

cinema_goddess:
Seattle_JiLLn:
cinema_goddess:
Is it possible for you guys to refinance your current place, get the payments down, then rent it out until the housing market is better?
We were going to do this until we found out we couldn't because our current development is in litigation with the original developer and apparently you can't refi when you're in litigation. We're about 20k or so underwater and DH has spent a good portion of the last 18 months looking into options for us to get out of this place and move back to Seattle.

If they owe more than it's worth then they can't refinance for more than the current value, which would mean they'd have to pay the loan down to the current value anyway, plus be looking at a 100% finance, which wouldn't qualify for a good rate.
It depends on the loan they have. There are a couple of federal programs out there to help people underwater on their mortgage to get refinancing. We were eligible for a complete refi until our development went into litigation.

Yep, we refied a year and a half ago and actually pay more now because we have to pay PMI because the value dropped so much. We will come out ahead in the long run though. We thought we'd be eligible for one of those programs, but (at least at that time) you can't get one if you live in a condo, and our (single family home) is technically a "detached condominium."

jcyahne · January 2011

Another thing to consider when it comes to short sales is that there are tax implications. We had friends who did a short sale on their house last year (they were about 75K underwater and about to foreclose). They now owe a lot of taxes because the federal government viewed the difference between what they owed on the loan and what the bank got for the house.

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