How can I get rid of a home with more loans on it than it is

jmcottam · Joined: 26 Jan 2008 Posts: 1 1.36 Dollars($)

We need out of our CA home. A new job has brought us to another state, and we have hung onto this the CA home as long as we can. We bought the home with $60,000 down and a first mortgage of $400,000 and a second for $60,000. With market downturns, the home is only worth about $370,000 at the very best now. Is our only option foreclosure? We cannot afford to make up the difference.

lisascherzer · Joined: 04 Jan 2008 Posts: 599 69.58 Dollars($)

I would avoid foreclosure if at all possible. Many mortgage lenders are considering short sales. A short sale is when the lender accepts less than what is owed on the mortgage to satisfy the balance. This would need to be approved when you have a buyer that has filled out an offer to purchase or purchase agreement contingent upon approval of a short sale from your lender. Make sure you put that contingency in the contract or you will be obligated to come up with the difference if your lender does not approve it.

So my suggestion is to lower the price of your home as much as you can and let your realtor know that you are planning on doing a short sale (if this is what you choose to do).

Your next option would be a deed in lieu instead of going through the foreclosure process. This is where the lender agrees to take over the home and will forgive any deficiencies that may result out of a foreclosure.

Worst case would be foreclosure. The bank will sell the home and if it does sell for less than what is owed on the mortgage then they can come after you for the difference. This is called a deficiency judgement. A foreclosure will also tarnish your credit more than the other two options. I would avoid this at all costs.

lisascherzer · Joined: 04 Jan 2008 Posts: 599 69.58 Dollars($)

Where is your home located in CA? I heard the market was soft in some areas but I had no idea it was that bad in some places.

jameswells · Posted: Sat Jan 26, 2008 11:43 pm Post subject:

Lisa gave you really good advice, the only other option you may want to explore is to rent the property or sell on contract.
If you can rent the property effectively then you may be able to cover the cost of the property until the market turns in your favor and you can get out without a loss. Renting comes with many risks though- nonpayment by renter, property damage, and legal liability.
Selling the property on contract is another option with risks/benefits. Many buyers many not be able to obtain a mortgage thru a bank, but if you as the seller finance the property for 2-3years until they can get a mortgage... Some of the risks to consider here are- same ones as renting and a due on sale clause (your mortgage may have a clause requiring payoff if you sell it- even on contract). The benefits over renting are that normally the buyers will take better care of the property.

Caron

Hi Jmcottam,

I agree with all posters here. Apart from the options suggested, you could do a lease to purchase thereby offering property on rent for a few years an then selling it off to the tenant. You can pay off the loans monthly using the rent payments till the property is sold off and the mortgages are assumed.

However, if the second loan gets paid off through rent payments, then it's only the first that the buyer needs to assume. but you need to have a talk with the lender informing him that you will be involved in such a transaction. This should be done in order to avoid problems, if any, during assumption.

Good luck

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