Sell the Property - Short Sale | Rent the Property

Consider selling the property before foreclosure becomes inevitable. If the market value is higher than the outstanding mortgage, this could help you pay off the loan and possibly make a profit.

Time is the enemy, meaning, you should (must) be proactive and explore your options as soon as possible. I can’t emphasize this enough. I have seen so many times (majority of time) where homeowners avoid coming to grips with the reality of possibly losing their home.

If your home is in disrepair, such as the roof condition being poor, you can still sell the home. And even if you owe more on the mortgage than what the home is worth, you can still sell the home (short sale) to avoid foreclosure and avoid a deficiency judgement against you.

Some of you may have more than one mortgage, or equity line with a balance, judgements, an IRS judgement, county liens, or city liens, etc. and despite all of that, I have helped homeowners sell their home.

What is a Short Sale?

A short sale is a real estate transaction in which the proceeds from selling a property fall short of the outstanding balance on the mortgage, and the lender agrees to accept a reduced payoff to release the borrower from the mortgage obligation. In simpler terms, it's a sale in which the lender allows the homeowner to sell the property for less than what is owed on the mortgage.

I have successfully helped homeowners with the sale even when the foreclosure sale date was imminent. This involves getting the foreclosure auction date postponed.

Here's how a short sale generally works:

1. Financial Hardship: The homeowner experiences financial hardship, such as job loss, medical expenses, divorce, or other circumstances that make it difficult to continue making mortgage payments.

2. Listing the Property: The homeowner decides to sell the property and lists it on the market with a real estate agent. The listing price is typically lower than the outstanding mortgage balance. There is no real estate commission to pay.

3. Purchase Offer: A buyer makes an offer on the property, and the homeowner accepts it. However, the offer is contingent upon the lender's approval of a short sale.

4. Short Sale Approval: The homeowner submits a short sale package to the lender (I help with that), which includes a hardship letter (I have samples), financial documents, and the purchase agreement. Additionally, your agent writes a statement and provides a thorough market analysis detailing why the lender should accept less than the full amount owed. The lender reviews the documentation and decides whether to approve the short sale. The lender will issue an approval letter and, in this letter, we will want it to state that the lender will NOT pursue a deficiency judgement.

5. Closing the Sale: If the lender approves the short sale, the transaction proceeds like a standard real estate closing. The buyer purchases the property, and the proceeds go to the lender to settle the debt. The homeowner is relieved of the mortgage obligation.

Benefits of a short sale include:

- Avoiding Foreclosure: A short sale allows the homeowner to avoid the negative consequences of foreclosure on their credit report.

- Reduced Financial Impact: While a short sale still has some impact on credit, it is generally less severe than a foreclosure.

- Control Over the Sale: The homeowner has more control over the sale process compared to a foreclosure, where the bank takes over the property. There is dignity in having control over the outcome.

- Potential for Future Homeownership: Homeowners who go through a short sale may be eligible to purchase a new home sooner than if they went through a foreclosure.

However, it's important to note that short sales can be complex and may take longer to close than a traditional sale, and this is where expertise and experience are vitally important to you. Additionally, not all lenders will agree to a short sale, and the process requires the cooperation of all parties involved. AND in a short sale the homeowner does not pay the real estate commission, owner's title insurance policy and associated costs for title insurance, nor the documentary stamps on the deed.

Renting the Property

Renting out your home can be a potential strategy to generate income and avoid foreclosure, but it's important to carefully consider the implications and feasibility of this option. Here are some key points to keep in mind:

1. Lender Approval: Before renting out your home, check your mortgage agreement and contact your lender to inquire about any restrictions or requirements related to renting. Some mortgages may have clauses that limit your ability to rent out the property without the lender's approval. Some down payment assistant programs will call the loan due if the home becomes a rental.

2. Local Regulations: Be aware of local laws and regulations regarding rental properties. Some areas may have specific rules and requirements for landlords, such as obtaining permits, meeting safety standards, and complying with zoning regulations.

3. Market Conditions: Assess the local rental market to determine if renting out your property is a viable option. Consider factors such as rental demand, market rates, and the condition of your home compared to other rental properties in the area.

4. Property Management: Decide whether you will manage the property yourself or hire a property management company. Managing a rental property involves responsibilities such as tenant screening, maintenance, and handling any issues that may arise.

5. Financial Considerations: Calculate whether the rental income will be sufficient to cover your mortgage payments, property taxes, insurance, and maintenance costs. It's essential to ensure that renting out the property is a financially viable solution. How long could you financially keep the mortgage current when you have a 1-, 2-, or 3-month vacancy? How much life does your roof, heating/cooling system, or water heater have?

6. Communication with Lender: Keep open communication with your lender throughout the process. Inform them of your intention to rent out the property and discuss any necessary arrangements or documentation.
7. Contingency Plans: Have contingency plans in case the rental income is insufficient or if there are other challenges. If renting out the property doesn't prove to be a sustainable solution, you may need to explore other foreclosure prevention options, such as loan modification or forbearance.

While renting out your home can provide a source of income and help you avoid foreclosure, it's not a one-size-fits-all solution. Each situation is unique, and it's crucial to carefully evaluate the financial implications, legal requirements, and market conditions before making this decision. Seeking advice from a real estate professional, financial advisor, or legal expert can help you make informed decisions based on your specific circumstances.