Liquidation options can help reduce the negative effect on your credit reputation. There are several different ways this might occur depending upon your financial circumstances. If you simply can’t afford to stay in your home and haven’t been able to sell it, you may qualify sell or “short sale” your home. Liquidation options include:
1) Selling your home. To consider this option, research the “sold for” numbers, or comparisons “comps” of similar homes in your neighborhood. Ignore the LISTING PRICES unless you live in a submarket that is not falling in real estate values. Complete this research by calling your local Realtor or checking the internet at a home value website. It is essential that sellers, realistically understand that houses in some market are taking up to 11 months to sell.
Selling your Home Example:
Be careful when listing with a Realtor. John, a real estate investor, almost lost an investment property to foreclosure due to Realtors trying to get the listing by enticing me into listing my home for the “top dollar” which would net them the “top commission”. Often incoming offers did not have enough equity to cover the mortgage and their commissions. Be sure that your realtor is looking at your best interest 1st, theirs 2nd.
2. Short Sale. If you can sell your house but the sale proceeds are less than the total amount you owe on your mortgage loan, the lender may agree to a short sale payoff or “short sale” and write off the portion of the borrower’s mortgage that exceeds the net proceeds from the sale. When a borrower receives a short sale offer, the borrower should contact the lender immediately. The lender normally takes them a month or two to consider the short sale settlement.
Disadvantages of a Short Sale:
o Sometimes the lender can take a long time to consider a short sale offer, in the meantime, your foreclosure clock is still running and the seller may tire of waiting and go to another house.
o Possible tax considerations, talk to your tax accountant about the 1099 ordinary income for the gift of forgiven loans, as well as the insolvency exceptions.
o Problematic option if you have a 2nd or 3rd loan, line of credit secured by the property. Although the 1st lien holder of the property may agree to a deed-in-lieu of foreclosure the subsequent lien holder have not. The subsequent lien holder loans can become unsecured debt that is attached to and stay with the borrower to pay off.
Short Sale Example: Sharon’s and her husband George separated. George left Sharon with the entire mortgage to pay. Sharon was not able to pay the mortgage by herself and decided to put the home up for sale. The payoff amount of the mortgage was $575,000. Ricky Realtor advised Sharon that her home value was $500,000. Sharon decided to put her home on the market, but attempt to sell it as a short sale. After 5 weeks, Sharon received an offer for $490,000. Ricky Realtor submitted the offer to the lender. The lender took the offer for $490,000, agreeing to take less than the payoff in the mortgage.
K. Patrice Williams has a BA in Economics as well as a law degree. She has successfully managed both residential and commercial multi-million dollar income producing assets and budgets for more than 10 years. As a 1st year law student, Patrice established a real estate development and consulting business and acquired over 30 rental properties. As the housing market values decreased- like millions of other Americans-her properties were negatively impacted by shifting ARM’s, combined by a sluggish economy. Patrice has researched and personally implemented almost all of the pre-foreclosure techniques detailed in the book: “6 Simple Steps to Avoid Foreclosure”. http://www.avoidforeclosuremanual.com
