When the value of your home is less than the amount you owe on your mortgage, your investment is considered to be “upside down.” Selling under these conditions, known as a short sale, involves the cooperation of your lender and establishing a financial hardship on your part. Without the financial hardship, you can expect to walk away from your upside down mortgage with a deficiency judgment, meaning you'll owe your banker the unpaid balance.
Contact a certified short sale specialist at your local real estate brokerage, as lenders won’t work with homeowners directly when doing a short sale. Speak with three agents, asking each to present a market analysis and suggested selling price for your home. Choose to work with the real estate agent who is most realistic, having compared like-for-like: short sales-to-short sales. Set a price for your home and list it for sale, taking into account your personal time frame and the urgency of your sale.
Continue making your payments, if possible, to protect your credit and future home buying possibilities. Be current in your homeowners association – HOA -- dues, if applicable, to avoid the HOA from foreclosing on the house ahead of a short sale.
Make contact with your lender’s loss mitigation department’s asset manager, the person who’ll handle your short sale for the lender. Tell her your situation and request the lender’s short sale package. Ask for an authorization letter to be included, giving your agent permission to speak with the lender on your behalf.
Maintain your home and make minor improvements to help its marketability. Clear the clutter, paint the walls a neutral color and clean the carpets. Be sure it has curb appeal -- to set your home apart from its competition.
Type your hardship letter when you get the short sale package, outlining why you need to sell your home as a short sale. Give specific reasons, such as the loss of a job, a salary cut or unexpected other expenses. Offer supporting evidence, such as a letter from your employer verifying your statements.
Submit your hardship package along with the most recent comp sales your agent can supply, asking for an “approved price” to be established by the lender for your home. Sign a purchase contract that comes in that’s within your market’s price range. Submit the offer to your asset manager.
Wait for the lender to approve the purchase contract. Sign all the necessary sale documents and be present at the closing. Maintain the house exactly as it was when the purchase contract was submitted. Do not remove anything that is included in the sale.
Ask that the lender agree to no deficiency judgment on the price differential between the amount of the loan and the price it accepts at settlement. Be sure any foreclosure action, usually directed by a separate department at your lender, be suspended. Stay current in your payments and consider other options: a loan modification, mortgage relief or refinancing, to protect your credit and save your home.
- CNBC: Underwater Mortgage: CNBC Explains
- U.S. News and World Report: MSN Real Estate: Six Strategies for Dealing with an Underwater Mortgage
- Los Angeles Times: Refinance Program for Underwater Borrowers Extended Two Years
- Bankrate: What if You’re Upside Down in Your Home?
- National Association of Realtors. "Short Sales & Foreclosures." Accessed July 6, 2020.
- National Association of Realtors. "The Short Sale Workflow." Accessed July 6, 2020.
- Federal Trade Commission. "Getting a Mortgage after a Short Sale." Accessed July 7, 2020.
- IRS. "Real Estate Property Foreclosure and Cancellation of Debt Audit Technique Guide," Page 2. Accessed July 7, 2020.
- National Association of Realtors. "Short Sale Relief on the Horizon?" Accessed July 7, 2020.
- Ask that the lender agree to no deficiency judgment on the price differential between the amount of the loan and the price it accepts at settlement.
- Be sure any foreclosure action, usually directed by a separate department at your lender, be suspended.
- Stay current in your payments and consider other options: a loan modification, mortgage relief or refinancing, to protect your credit and save your home.
Jann Seal is published in magazines throughout the country and is noted for her design and decor articles and celebrity *in-home* interviews. An English degree from the University of Maryland and extensive travels and relocations to other countries have added to her decorating insight.