What happens if you sell your house below payoff?
I am just wondering how the rest of the ends get tied up if I have to sell my house for less then I owe? I have to sell my house because renting it out would cost a lot in property management and higher insurance rate due to a pool. So if I sell the house below what I owe between two mortgages how does that work? Then if I have an agent, how would the agent or the buyer’s agent get commission?
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Tags: insurance, insurance rate, mortgages, pool, property management
October 12th, 2009 at 9:30 pm
With all due respect to the other responders, you CAN pay off a house with less money than you actually owe. It’s known as a ’short sale’ and you can negotiate one with your bank or mortgage company. They would rather take a short sale than let you go into foreclosure, because foreclosures have the potential to be disastrously expensive for a bank. Ask your bank what steps you need to take in order to work this one out, and make it obvious that you are doing the best you can to be honest with them about your situation.
October 12th, 2009 at 9:30 pm
Bob D is correct. You will not be able to close the sale unless you have funds available to pay off both mortgages.
October 12th, 2009 at 9:30 pm
Look at it this way: Your mortgage company loaned you a certain amount of money. The money wasn’t based on the future or anticipated value of the house; it was based on an appraisal of the property at that time. You accepted the money. At that point, you gave it to the seller, and agreed to pay the mortgage company back.
It doesn’t sound like you are in a position to sell the house, because you would have to provide a clear title (i.e., no mortgage) at closing. Since you’d still owe money, you wouldn’t be able to do that. You’d probably have a hard time finding a reputable real estate agent to take the listing, anyway, since a good one will sit down with you, figure a value, and give you a "Net Proceeds" worksheet that tells you approximately how much money you would expect to pay or get from a sale. If the net proceeds says that you don’t have enough money, the agent will probably refuse the listing.
Consider renting the house out yourself to avoid property management fees until property values recover. Or short sell the house — i.e., sell it back to the lender, a bit like a foreclosure. There are agents who specialize in short-sells, but you have to hunt. If you ask and they say "huh?", keep looking.
October 12th, 2009 at 9:30 pm
You can sell the house for less than you owe but you need to have the money on hand to make up the difference between the payment and the amount of the mortgage.
October 12th, 2009 at 9:30 pm
the bank wouldnt allow you to sell it for less than the mortgages owed.
October 12th, 2009 at 9:30 pm
Kirsten is 100% correct, this is possible. The only thing is, there can be tax ramifications with this, so you’ll need to talk to your accountant and attorney.
When you sell your home Short Sale, the bank agrees to release the lien for less than you owe, so there in fact will be a clear title conveyed.
You can do it, and it’s usually bette than a foreclosure.