Q&A: Offer Doesn't Cover Loan

Q: A common question over the past year has been: “What happens if I am trying to sell my house and I am not able to get a new buyer who will pay as much as my outstanding loan?” “What are my options then?”

A: The questions you raise are faced by many borrowers across the country and the answers to your questions vary somewhat depending on several factors:

a. Your circumstances, including your reason for default

b. Your guarantor, meaning who ultimately is holding the loan and stands to lose the amount NOT being offered by the new buyer

c. Your resources, ie. Money in savings, retirement account, etc.

d. Current restrictions or requirements from external forces such as the TREASURY

Ordinarily, to sell your home, you need to get an offer which will cover all the costs associated with the transfer AND cover the full amount due to the lender to pay off your mortgage in full. In today’s climate frequently the value of the home has fallen and that is not possible, creating what is now commonly called a ‘short sale’. The lender may require one of more of the following options:

1. You sign an unsecured note for the difference (or an amount you negotiate which is less than the difference but will satisfy the guarantor).

2. You bring a check to closing for the difference between the offer and the amount owed.

3. Someone other than you (the real estate agent, the purchaser) pay the difference or a negotiated, compromised amount in order to allow the closing to move forward

HOW do you handle a potential sale when you are not likely to get all that you owe from a new buyer?

Select a REALTOR® who is experienced in handling short sales in your area and work closely with them in providing everything your lender/servicer is requesting in order to get them to accept an amount which is consistent with the current value of the home.

IF you cannot negotiate a compromise for less than the full amount owed: THEN foreclosure is frequently the outcome.

Best of luck with your attempt to move your home in today’s market. With market savvy and determination, it can be done!

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)