Expert: Diann Tonnesen - 4/21/2007

Question
QUESTION: How much of the principal to a home purchase must be repaid before you are allowed to sell it?  I appreciate your help.
ANSWER: Hi Augusto!

There is no rule about how much principal must be repaid on a home loan before you are allowed to sell it. But some loans do have prepayment penalty clauses in them that may cost you money if you pay the loan off (by either paying cash or selling the home) prior to a pre-established time. The penalties can equal from six months to two years worth of interest. You would need to look over the note and terms on the specific loan on your home to determine if there is a prepayment penalty.

Another possibility might be that you have gotten a special interest loan (usually for low income families) that requires you to pay a penalty if you sell a home before a specific time. Again you would need to look at the terms of your note to see if that applies in your situation. And yet a third possibility is that the developer of a new home might have established within the sales contract some sort of penalty if you sell your home prior to a certain time.  

All of the above examples are relatively uncommon, but again, when in doubt check the terms on the note for your loan. Any prepayment penalties or penalties for early sale clauses would be there somewhere in the fine print. Hope this helps!

Diann
http://www.greatlasvegashomes.com



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

QUESTION: Thanks for the answer.  Something doesn't sound right to me though.  If an owner is able to sell property immediately afer purchasing it, how does one account for all those foreclosures?  Obviously after a foreclosure, the bank or mortgage company has to find a way to sell the property anyway--after the owner has left.  One would think this would motivate the owner to find financing for selling expenses.  This is especially when the same outcome can occur for both instances: the owner becomes homeless.  At least in the case of selling the home himself, the soon-to-be ex-owner has a chance to make some profit for pocket money to sustain him through his homelessness.  If he's foreclosed upon, then it seems he's left with nada.  

Anyway maybe you can help clear up this confusion in my mind.  Thanks!

Answer
There are so many reasons for foreclosures. Most of the time there IS no profit for the owner, and not even enough money to cover the selling expenses. So many of the foreclosures we are seeing right now were bought with no money down in the past two years and of course the housing prices have shifted downward.

Another reason is often the homeowner waits until too late in the foreclosure process to have enough time to sell the home. They keep thinking that something will happen and they will get enough money to save their home which they are emotionally attached to and do not want to leave.

And yet another reason is the homeowner is too embarassed by the fact that they can't make the payment, believe it or not! Sad as it is, I have seen homeowners who have plenty of equity who have not contacted their mortgage company or even tried to sell their home because they just had too much pride to admit they had a problem.

And yet another reason is the homeowner got some bad advice about what their rights were to stay in the home. Recently I ran across a homeowner who had homesteaded his home. In Nevada a homestead protects the homeowner up to $350,000 in equity from judgements. It does not, however, protect against foreclosure. The homeowner stubbornly refused to believe that the homestead did not protect him against the foreclosure and wound up losing his home and all his equity. Another homeowner was told by an out of state attorney that he could still buy back his home after the foreclosure sale. Unfortunately the out of state attorney was operating in a state that has a redemtion period after the sale. Nevada has no recourse for the homeowner after the sale, and he ended up losing his home.

Every state has different laws on foreclosures and the rights of the homeowners, and they are often misunderstood. (Sorry to keep using Nevada, but of course that is the one I know about!)

So there are many possibilities about why a homeowner would go to foreclosure. Often if they communicated with their mortgage lender they can even arrange for a short sale where the lender agrees to take less than the amount owed. The lender does it because they really do not want the house back and for the homeowner at least they do not have a foreclosure on their record. But many homeowners do not know they have this option and they spend all their time ducking calls from the lender rather than trying to work things out.

Hope that helps clear things up?

Diann
http://www.greatlasvegashomes.com