Foreclosure in Michigan>Question Details

Cyndi, Both Buyer and Seller in Westland, MI

What happens if we sell our home for less than we owe?

Asked by Cyndi, Westland, MI Sat Jan 19, 2008

We owe $165, 000 on current home. Currently, some homes in area are selling below that. If we want to upgrade to new home, what happens. ( Yes, we have considered adding on and our credit scores are near 700.) Do we need a huge downpayment on the next house? I am just concerned with Michigan's economy and that home values will continue to drop. I am worried we will be stuck if we wait too long.

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I wrote an extensive four part blog on short sales (which is what you are talking about) and foreclosures.
Perhaps that will be of help. Remember, your personal residence is a long term investment, and with any market, there are ups and downs. We love it when the market goes up and we as long as we are not buying. We love it when the market is going down as long as we are not selling.
1 vote Thank Flag Link Sat Jan 19, 2008
Keith Sorem, Real Estate Pro in Glendale, CA
The fact that your home sells for less than you owe does not automatically erase the obligation to repay the debt. If you have savings, then the bank will typically expect you to use that to cover any shortfall in the sale. If you don't have savings, then you will have to ask the bank to accept a short sale. There are lots of scenarios that can impact you with a short sale, so I would make sure you have a Realtor who has worked on them before. They can be complicated.
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1 vote Thank Flag Link Sat Jan 19, 2008
Maureen Fran…, Real Estate Pro in Birmingham, MI
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0 votes Thank Flag Link Mon Feb 11, 2008
be very careful, you may need a attorney to help you. We call this a Short Sale, Realtors can help you with it. But I always suggest for my clients to speak with a attorney about this.
0 votes Thank Flag Link Sun Feb 10, 2008

If you sell you home for less that what you owe you would need to bring money to the closing table. If you did not have the funds then you would end up doing a short sale and it will effect you credit score and the repurchase of another property. At some point the market will recover and maybe it is a thought to wait it out so you do not take a hit. Good luck.
0 votes Thank Flag Link Sat Jan 19, 2008
Pam Winterba…, Real Estate Pro in Danville, VA
Cyndi, Some interesting answers to your question. I suggest you speak with your lender, your financial planner, and an income tax professional to get ALL your options. Yes, Westland market values have declined. Most of the decline is due to the glut of homes on the market and increased foreclosures in Wayne County.

I suggest you speak with your lender, inform them that you would like to purchase a new home, that you understand the value of your home hase declined, possibly to less than what you know.
Once your lender has that information, they can advise you of your possible choices. To my knowledge, previous responses about paying your lender from your bank or retirement funds may be an option. A financial planner or tax advisor would be able to advise you of your choices and any penalties involved.

If you go to the bottom of the Trulia web page and click on Tools for your site, there is a graph tool. Enter Westland, MI in the tool and it will show you the average list price of homes in your area, the median list price, and on the bottom right corner of the graph home inventory. All of this information will keep you informed of what's happening in your area.

Sale prices are forecast to continue decreasing in value. Because this is an election year, I believe the Federal and State governments will step in with assistance. Already, the number of buyers making mortgage applications has dramatically increased. How many of these turn into qualified buyers remains to be seen.

If you have more questions, or would like to be pointed to some websites for more assistance, feel free to contract me through Trulia.
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0 votes Thank Flag Link Sat Jan 19, 2008
Cyndi, if you sell for less than you owe, you would need to bring money to the closing table. Or you would have to do a "short sale" if your neighborhood has gone down and home similiar to yours are selling for a lot less.
If you are staying in Michigan than you are just transferring negative equity to your new home.
But, you have a home that more meets your needs.
As the economy recovers in MI homes will go back up, both your current and the one you want to purchase
so IMO it is better to be in the right home. As homes go back up, which could take several years, you will get more for your current home, but the home you want to purchase will also be more.

So it is like, take your medicine, now or later. With your good credit score's you can get a loan with very little down.
0 votes Thank Flag Link Sat Jan 19, 2008
I am not a lender so I researched your question, as this is a very good question that many people ask. Here is a link to a website which I feel may supply you with the some answers.

Also, your concern about waiting too long to sell your home is viable.

I ran into my first declining market situation this week, and just wanted you to be informed what is happening in the market, as it may effect you.

With so many bank owned homes being sold, and homes being sold for much less then their assessed value, it has turned some of neighborhoods into a declining market area. Your neighborhood may fall into this category. If someone wants to buy your home for, let’s say....................$150,000.00 and then goes to a lender to get the loan, the lender will send out an appraiser. They appraiser will take in consideration how many bank owned homes have sold and for how much...........if there are several, they will have to mark the appraisal as a declining market. Which means the buyer will have to put down 5 percent of the loan for a buyer hoping to get 100 percent financing, they will not be able to. Just so you know. When you are ready to list your home, I would advise you to ask your realtor about this and be prepared. As you do not want to take an offer based on 100 percent financing and it not go through..............and risk your home being off the market for a bad deal!

There are still 100 percent financing options, however after what I wrote above, it may not matter as you may not be able to use them for the home you are going to purchase.
0 votes Thank Flag Link Sat Jan 19, 2008
Hi Cyndi - You are not the only one in your situation. Do you have money available to bring to closing? Although you may lose some money on your current home, you will be making it up (and more) with your next purchase. All of my most recent sales are appraising for $25,000+ the actual purchase price. Having said that, a home is only worth what a buyer is willing to pay. If your next home is where you will stay for the next 5+ years, it is a great decision to purchase at these lower prices.

It does sound like you have good credit. Unfortunately, that won't help you with the bank accepting less than what is owed. Banks are willing to accept a lower payoff (called a "short sale") but only to help owners who are having trouble affording the home so they can avoid foreclosure. If you are current with your mortgage, they will most likely reject your request to give them less then what is due. It will also hurt your credit and it does not relieve you of owing that amount of money. Even if the bank accepts less, they may hold you responsible for the difference. Your best bet is to get a market analysis, look at some homes that are currently on the market (to see what is available) and then weigh your options to see if it's worth moving at the moment. You should also expect a longer market time too with your home, so keep that in mind while you are debating.

I hope that helps a little. Good luck. If you have any specific questions, feel free to contact me.

Nicole Sleeva, ABR
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0 votes Thank Flag Link Sat Jan 19, 2008
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