Selling a house for less than what's owed

[Bob B.]

I've posted about a house we're trying to sell before.

What is the process if someone sells a house for less than what's owed on the mortgage?

I don't think we'd be considered for a short sale, because we've always made payments.

I've generated scenarios where we might owe anywhere between $500 and nearly 28K, depending on selling price, and when the house is sold.

We could cash flow up to $2,000

But if the amount we owe is greater than that, we're sunk. Especially if we're talking 20-25K, which may be fairly likely.

I'm sure it varies bank to bank, but what are some likely scenarios?

Would we have a 5,10 or 15 year note?
If so, what are likely interest rates?

Any help or suggestions would be appreciated.

Thanks

[disneysteve]

What is the process if someone sells a house for less than what's owed on the mortgage?

I don't think we'd be considered for a short sale, because we've always made payments.

That is the definition of a short sale - selling for less than is owed. The fact that you are current on payments has nothing to do with it.

You need to discuss this with your lender and see what they say. They would have to approve the deal. If you can pay the shortage out of pocket, that shouldn't be any problem at all I would think.

Would we have a 5,10 or 15 year note?

I'm not sure what you are asking about here? A note for what?

[emanon1501]

Do you live in recourse state? In some states, the seller owes nothing if it was short sell. In other states, the bank can go after the seller for the difference between what was owed and the sold price.

[Bob B.]

OK, my understanding of a "short sale" was that you sold your house for less than owed, and the bank "forgave" the balance.

Maybe that's not a short sale?

A short sale is selling the house for less than owed, and striking some kind of deal with the bank?

It's a near given that we will be selling our house for less than we owe.

My realtor has told me that we would have a hard time qualifying for a "short sale" because we have faithfully made our payments.

So, what are my options if the following scenario happens:

We owe 103K on the mortgage
Someone makes an offer for 95K, and we choose to accept it.
A market analysis of like sales shows that the value of the house is about 95K
Closing costs/realtor commissions are somewhere in the neighborhood of 8K
We owe the bank somewhere in the neighborhood of 16K at close.
We can come up with 2K in cash at close
How is the remaining 14K balance handled?

Does the bank refuse to allow us to sell the house?
Can we set up a repayment plan with the bank?
Does the bank forgive the 14K balance?

I know that ultimately this is a conversation for my lender, but I was courious about some likey scenarios.

Thanks

[Bob B.]

Do you live in recourse state? In some states, the seller owes nothing if it was short sell. In other states, the bank can go after the seller for the difference between what was owed and the sold price.

I live in Michigan.

Michigan is listed as a recourse state at the following site:
Non-Recourse and Recourse States List

[JoshuaHeckathorn]

The short sale has to be approved by your lender first. Let's say someone offers you $95K and you accept the offer. You then need to present that to your lender to get it approved. This process can often take quite awhile and they may turn the deal down.

If they approve the deal and your home sells short, they can either forgive the deficiency or come after you to obtain a judgment if you don't pay the difference. I've purchased a short sale myself and the seller I purchased from was able to negotiate with his lender to have the deficiency completely waived (seller was current on payments too).

Worked out great for him, and it was a great buy for me too. Remember, everything is negotiable with these deals and it can definitely be worth it to have a good attorney on your side.