Once you sign on the dotted line for your mortgage, you enter into a solid, long-lasting commitment. It can outlast the house or owner itself! To sell a house and get out from under a mortgage requires planning and approval from the lender. Aside from selling the house for less than it is worth and paying the bank the difference, here are five ways homeowners get out from under a mortgage.
Strategic default or walking away. Some underwater homeowners just stop making payments, move away, and send “jingle mail” (the keys) back to the bank. Wealthier homeowners whom find folly in paying a mortgage worth more than the house, plan for alternative housing, and abandon the property. In some cases though, if homeowners advise the bank they wish to abandon the property, may settle with a deed in lieu and return the property to the lender.
Deed in lieu. Deeding your property to the lender in exchange for being forgiven the entire amount of the mortgage is called a deed in lieu of foreclosure. The lender then sells the property and recoups a portion of the unpaid mortgage.
Foreclosure. When the bank does not get paid, they may file foreclosure on the homeowner, who is forced to leave after a court judgment. Timing varies, so many foreclosure victims are left with great uncertainly as to their futures. If they are also out of work, they may have difficulty finding other shelter.
Short sale. A homeowner can ask the bank to accept less than the loan’s balance through a short sale. This is still damaging to credit, but allows the owner more control over the sale. As widespread short sales become the norm for handling property that current owners cannot afford, the stigma and the impact on credit may diminish. With a short sale, the bank may try to hold the borrower liable for the difference between the mortgage value and the sale price.
Rent out the house. Those temporarily in bad circumstances can rent out their home and live elsewhere until they can afford to live in the house again. This approach works well in areas where rental property is in high demand and rents are substantial. The homeowner becomes a landlord, which changes the picture for both taxes and insurance. If considering this option, check with your insurance company and accountant.
Sell to a company that buys houses. There are legitimate companies in business that buy homes to fix up and sell. This can be a fast way to eliminate your mortgage obligation. You receive a discounted amount for the house, but pay NO money out of pocket to sell it. This means no real estate fees and no renovation costs normally associated with preparing a home for showings. Since the process can be completed in a week or so, selling your home to a company allows you to beat a foreclosure filing, resolve an estate, or liquefy assets quickly.
When you owe on a mortgage, you must settle with the bank in some way. Your goal should be to sell your house in the way that costs the least in cash and time.