Expert: Todd C. Menard - 7/22/2008

Question
QUESTION: Is there anything that can be done, in this bad market for saleing a home, if you owe more then what the houses are selling for in my neighborhood ?  How can we move if we can get what we need to pay off this house ?

 Linda

ANSWER: Hello Linda - Currently, homeowners are suffering from increased mortgage payments as a result of a recalculation which was part of the  loan program they selected when purchasing the home. This sharp increase in the recalculated monthly payment has caused many of these homeowners to default on their loans. Many homeowners are opting to sell their homes only to realize the value of their home has slipped below the loan balance. Depending on how much the home value has receded will determine the your options. So if your home is worth considerably less than the amount you owe, you would have to make up the difference (deficiency) by bringing cash to the closing. In other words, to calculate your expenses to sell you take the anticipated sale price of your home, subtract your settlement fees (escrow, title, finance, commissions, and seller contributions to buyer, if any) then subtract your total encumbrances (loan payoff amount(s) not the balance on your statements as it will differ) and if the bottom-line is a negative number this will tell you how much you have to write a check for to sell your home, if it is a positive number than of course this is your proceeds. If this results in a negative number and the number is significant, and you are having difficulty making your payments... there may be other options for you. I would recommend that you speak with a HUD approved 'non-profit' counselor. This individual is trained to evaluate your financial position and communicate with your lender to assist you in navigating through this process. You can begin by contacting HUD (Housing and Urban Development) at 1-888-995-HOPE or use the internet at foreclosurehelpandhope.org - These are the Government assist helplines and site. The federal government has recently passed legislation to protect the homeowner during this crisis. The HUD counselor will advise you as to whether you qualify to take advantage of these programs. Of course, if you are not having difficulty making your payments you should consider remaining in your home until your home appreciates to cover the costs of sale (anticipating you are not under duress to sell as a result of job relocation/loss or medical/divorce). I hope this helps. If you need additional information or assistance please reply to this email. - Todd

---------- FOLLOW-UP ----------

QUESTION: Hi Todd:
 My neighbor told me of this "quick sale" on selling your house for under what you owe.  Have you heard of this?  Or she said, why can't you get a second mortgage, on a house you want, then walk away from the 1st one.....
       Linda

Answer
Hi Linda - I'll answer this in two parts - first, I have never heard of a quick-sale... she may mean a short sale or she was possibly speaking of a 'quit-claim deed' and confusing the two terms. We discussed the short-sale option in the first email.. if you want more info about this let me know... The quit-claim deed is a simple form of transferring title but has little to do in your scenario. Typically a quit-claim deed is used to remove or add a spouse or party other than the original qualifying party from or to an ownership interest in the home. Second, What she may be eluding to in the next statement is this... buying another home before you default on the one you live in now. There are many issues with regard to this including the type of financing (owner occupant versus non-owner occupant)(qualifying income/debt/ratio concerns), Second-home v. investment home (must be so many miles away from current home to be a 2nd home and must be located in a resort area), etc, etc. Not to mention possible legal issues. I would recommend seeking legal counsel prior to acting on your neighbors advice. An attorney with real estate specialty would be able to counsel you appropriately with regard to such an activity and the possible liabilities and future considerations. I hope this helped. If you find out what a "quick-sale" is please email me. I am always willing to learn something new! - Todd PS> Did you consider talking to a non-profit counselor yet? You might be surprised at what they counsel you to do.