Expert: Dick Dennis - 9/19/2010

Question
QUESTION: We bought a home in Texas 6 years ago. We knew the foundation had been repaired at that time. We were not aware of the kind of pipes used in the interior of the home.
I moved to another state 1 year ago for a job while my husband stayed behind to work and sell this house.
It is now 1 year later and this house will not sell. We had the foundation fixed again several years ago, and now it has settled even more than before we fixed it.  
The foundation is under warranty, however, if the house shifts again the pipes most likely will burst ( the particular kind of pipes are no longer used inside homes because it is known that they burst easily).
We have dropped the price of the home several times. As
it stands now, we will owe about $25,000 if it sold.
Will the bank take it back, knowing there is no way it will be sold? Do we have any options so as not to go bankrupt paying for a house here that will never sell and paying for a house we are renting in another state?
My husband and I have already been apart for over 1 year now trying to sell this  house.
Any advice is so very appreciated!!!
Jeannie

ANSWER: Not knowing the value of the house does not help me to help you, Jeannie. It is obvious that the house needs to be rehabbed, but that obviously takes money that you don't have. It's water under the bridge, but you should have had a legitimate home inspector go over the property before you bought it. The time is now here to pay the piper, Jeannie.

Since you cannot sell it, you're going to have to either give the house back to the bank by giving them a "deed in lieu." That means you give them the house by deeding them the house. The effect on your credit is the same as if you let it go into foreclosure.

If you sell it to someone on a "short sale," it is not as severe on your credit, but the bank has to go along with the short sale. You will not get a dime out of it. I would recommend you consult with a knowledgeable Realtor in the area of the house and have that person explain how a short sale would work for you.

Yes, this matter is not going be favorable to your credit. Just maybe a good Realtor will be able to find a buyer for you. You might want to consult with a Texas real estate attorney to know exactly what you should expect. I do wish you well.

Dick Dennis
dixiedee13@aol.com,

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

QUESTION: Thank you so much for your prompt response.
   We bought this house for $143,000 6 years ago.  We have now lowered the price for the 3rd time down to 119,000.  We will lose about $25,000 doing this. Our goal is not to make money, but to minimize our loss.
   When we bought this house we had it inspected.  The foundation had been fixed and passed the inspection.  We did not know anything about the interior pipes which were then taken off the market due to defectiveness.
   If we do the "deed in lieu", how much will this cost us?  We don't have any more than the $25,000 that we would be out if it sold.
   Our credit right now is excellent, but I am willing to let that go to get out from underneath this unsalvageable house.
   Can you explain more how the "deed in lieu" works?
Thank you again so much for your time.
Jeannie

Answer
Be aware, Jeannie, that the bank must accept your "giving" them the property. Most lenders require that the borrower is behind in payments before they start considering the deed in lieu. Again, be aware it is the same as a foreclosure and it may take your credit down .  . . all the way down. Some lenders will not accept a deed in lieu if the payments have been up to date. So be sure to talk to a CPA, attorney or tax expert to make sure you do understand it.

Someone, maybe an escrow agent or an officer in the title company can explain to you how a deed in lieu works and how to fill it out. Its a simple matter of filling out a warranty deed or maybe just a quit-claim deed to the lender.

If you do a short sale, you might be able to sell the house for much less that what you expected and when the lender knows the problems, they may go along with it. A short sale, again, does less damage to your credit.

Be well

Dick Dennis