Question Details

Al, Other/Just Looking in Florida

What if a mortgage can't be paid off from the sale of the house?

Asked by Al, Florida Tue Feb 10, 2009

What happens if the price your house sells for is less than the mortgage (or combined mortgages)? Due to the bad housing market many mortgages are more than the house is worth.

Or what if you just get less than you want from the sale and want some cash for the next house (Considering you have no problem buying a house). Can you choose to not pay off a mortgage and just keep making payments?

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Answers

6
If your home sells for less than you owe, then that would be considered a "Short Sale". That would mean that you are Short the amount owed to the lender. ( The lender still needs to approve a short sale and they usually have to go the, investor of your deed to negotiate that ) Also, check with your lender and the current laws in your state. They may send you a 1099 for the difference. The first thing you have to ask is: Do you have to sell ? If the answer in no, then you should ride out the storm. If you feel that you need to sell due to Financial Hardship, then your first call should be to your Lien Holder to try to re-negotiate your loan. They should have a "Work Out Dept" that will be able to help you with that. If you were a victim of Predatory Lending practices, not only should you contact your lender, you should also contact the Attorney General for your State. There are programs out there to help you, and the worst thing that you can do...is to do nothing.
If you are current on your mortgage, though feel you will not be for long, then you really have to be pro-active on the entire situation. If you Lender tells you that they can not help you if you are current on your loan and suggests that you miss a payment. Contact an attorney....because that is bad advise and will ruin your credit score, which they now use for utilities, cell phones, vehicle insurance and much more. I feel for all that are in that situation and if you do need to sell, then choose a Realtor® that is experienced in Short Sales. I wish the very best for you and I hope that your situation gets better.
1 vote Thank Flag Link Tue Feb 10, 2009
If you can not sell your home you may consider renting it out. Rather than just making the mortgage payments. The income will be taken into consideration when the bank qualifies you for a mortgage when you buy another house.Or else you should qualify based on your income to pay both the mortgages.Please note that if the income from rent is to be considered the place should have a lease in place .They take a percentage of yearly rent into account allowing for vacancy and repairs.
Web Reference: http://www.gitabantwal.com
0 votes Thank Flag Link Sat Feb 14, 2009
Al
Your situation is not uncommon. When a home is sold and the proceeds will not cover the mortgage payoff and closing costs, it is termed a "short sale". Short sales need to be approved by the lender if you are going to ask them to accept less than the payoff amount for the mortgage.

The problem is that many people are in your situation, so in most cases only those that have a compelling reason may be granted a discount on the mortgage. People that have had a death in the family, divorce, perhaps medical bills, would be examples of reasons why a short sale might be granted.

People that simply want the lender (and the investor who actually bought the loan) to take a big write-off are probably in for a rude awakening. The other problem is that there are credit consequences, so if you want to qualify for a new loan, a short sale is probably not going to help.

However, there are options. I recommend talking with a Realtor and developing your options, with pros and cons. For example, some lenders might be willing to let you make payments on the shortage (using a promissory note, for example).

The best thing to do is obtain competent advice from professionals, including your CPA, so you understand the choices and their consequences. Do not go into this with rose-colored glasses.

Good luck.
0 votes Thank Flag Link Wed Feb 11, 2009
Keith Sorem, Real Estate Pro in Glendale, CA
MVP'08
Contact
Al,

This may very well be a "short sale" situation.

We recommend being in touch with a local real estate professional to assist you with exploring your options.

Good luck
0 votes Thank Flag Link Wed Feb 11, 2009
If you have a mortgage, the bank technically owns the house, not you. You can always rent the house and try to cover the payments, but that normally does not work so well, especially with cap rates as they are in most markets now.
0 votes Thank Flag Link Tue Feb 10, 2009
No, when a house is sold, the original bank MUST be paid off, therefore if the house is sold for LESS than whats owed the seller would be responsible for the balance to be paid to the bank, the lien would NOT be released until this has happened.

the second option would most likely NOT be okay with a buyer because if you the prior owner for some reason do not make payments, they could lose the house regardless of making payments to you, thus wouldnt really work.

Thus at this time in this market, the only real option is pay off the liens as due and then sell for what you can.
0 votes Thank Flag Link Tue Feb 10, 2009
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