Short sale your house
A short sale happens when one owes more on a house than they can sell it for. In a short sale, a lender agrees to take less than what is owed to cover the mortgage when the house sells (i.e. eats the loss). This can be a great foreclosure prevention strategy if your lender will work with you.
Why would a lender ever do this though, take LESS than is owed on the mortgage? Well face it, lenders don’t want to own property, especially today. They are in the business of LENDING money. They don’t want the liability of some empty shack that someone might break into, burn, trash, etc. There was a guy in my area that made a living off of banks just this way. He would find houses that were bank owned and mysteriously fall off of the porch every time. Banks inevitably paid him because they didn’t want to deal with the lawsuit. Amazing how many times he did this. Anyway, you can see why a bank wouldn’t want to own a house. In addition, foreclosure costs are amazingly high, often into the tens of thousands, another reason banks are eager NOT to own your home.
The first thing you should do is find out how much your house is really worth. Check with a Realtor, as they have the most market information available. Almost any Realtor will do a competitive market analysis for free in hopes of getting your business. If they do a good job, think about hiring them, as Realtors actually are worth the money. Most charge 6%, yet houses sold by Realtors sell for between 8 to 12% more on average than those sold by owners. So actually, they don’t cost, they SAVE you money.
Have the Realtor prepare an estimate of closing costs. You need to be sure you can pay for the closing as well which can run several thousands of dollars in many cases.
Next, find out how much you owe right now on the house. Be sure to include first mortgages, seconds, loans from grandma and that guy that hangs out on the corner. You want to be sure everyone gets paid (and you don’t owe anyone else).
When you realize that you owe more than your closing proceeds are going to generate (which is common these days), contact your lender(s). Tell the customer service rep your tale of woe (how you just got back from your vacation in Tahiti and now can’t afford your mortgage would NOT be where I would start). They may direct you to a department that handles just this type of thing, and then see what they can do for you. Try to get someone in charge like the President of the company, or at least a supervisor who can do something for you.
See if they can help you. They will probably ask you everyone that you owe. If you have a second mortgage, the primary debtor is going to be less likely to help you, as they think the second should take the hit. If they don’t ask, don’t let them know you have a second, even though they can find out easy enough.
The lender then has several options. They can reduce your current mortgage to help you out, extend your payment plan, reduce your payments temporarily, or let you know if they would be willing to take less to pay off the note (short sale).
The lender will probably want your Realtor to take a reduced fee, and will try to nickle and dime eveyone else so they get paid first, but don’t let that deter you. Be willing to work with them if they will do a short sale as they actually are helping you.
Once you find out what they are willing to settle for, price your property based on that price, adding your closing costs and five to 10% on top of that (everyone wants to negotiate down, even on a steal price). The house should sell quickly if it is priced right, in good shape, and marketed correctly. If not, see my other articles on avoiding foreclosure and selling your house.
