What happens if my property sale does not cover my mortgage and secured loan?

Question

I am about to sell my house but the amount will not cover the mortgage and the secured loan. What will happen?

Answer 1

The only option I see to get out of this without owing is a "short sale".

The buyer, usually a saavy investor, negotiates with your bank to get them to accept less than the payoff balance of the loan you owe.

The bank may bend if they feel that you are going to foreclose and stick them with a house that won't sell. Then they wouldn't get their money anyway and would take a bigger loss. It helps if the house is a dump now that is impossible to sell.

If the seller can convince the bank that they are better off dumping the property, it may work.

Answer 2

What will happen is that you will pay all the proceeds from the sale to the mortgage holder. This will all go towards the principal because any money received over the monthly loan amount is put towards the principal. This will also reduce the amount of interest you must pay. The mortgage holder will then recalculate the amount you owe and give you that number this will be principal only, next you will have to find out how much the principal is on the secured loan. Once you have these two figures you will have to get a new loan to pay them off. Because you have sold the house which secured both loans you will now need an unsecured loan. This will give you a new payment figure and a new interest figure. This will not be tax deductible because it is not for a house. Also the taxes on your income may go down because of the loss on the house. You should talk to your tax adviser about that.

Answer 3

They probably have a lien on the home then, so YOU must make up the difference - contact your real estate agent immediately and they will walk you through it - or just contact the loan companies, tell them the situation, and ask them the TOTAL amount you will owe them upon the sale -- it may be more than you thought, as some of them charge you an early payment penalty - find out these facts before deciding to sell - you may not be able to afford to sell your home (crazy, but true - been there, done that, had to scramble to come up with $3,500 at THE LAST MINUTE, not fun).

Answer 4

As the seller, you may be required to bring cash to closing to satisfy all current debts.

Worst case scenario is that your current lender(s) will not release the mortgage(s) on the real estate because you have not retired the debt(s) in full. If the current lender(s) do not release the mortgage(s), the buyer will almost certainly refuse to close because the mortgage(s) stays with the real estate.

If the shortfall is small, maybe you can work out a deal with your current lender(s) to release the mortgage(s) by signing an unsecured note or by offering some other collateral.

Talk to your attorney and/or realtor and be open and honest. Do not go into closing with your fingers crossed and hope everything will work out. You will look like a fool if you cannot close. In addition, the buyer might sue your for breach of contract if you cannot or do not close as scheduled.

Answer 5

There's more to it than just "You'll still owe."

The escrow company will call you prior to closing and tell you how much cash to bring. If you can't pay the difference,the property CAN NOT TRANSFER. The lien for your mortgage/secured loan is tied to the property, and the buyer can't/won't take ownership with it on there....they'd essentially owe the money instead of you.

You need to contact your mortgage co asap and find out if they will be willing to turn the remainder into a personal loan or not......but dont bet on it.

Answer 6

Most banks require title insurance that looks for liens against the home. They do this to make sure there are no problems with the morgage like you are suggesting there willbe with your sale. There will be a lien against the home because you do not pay it completely off The other person may not get the morgage financing. If you fell behind in payments he could lose the property because of you. No clear title usually means no sale.

Answer 7

Put as much as you can into paying off the mortgage. After that you will continue to make monthly mortage payments just as you would have done if you continued to own the property, but you'll pay it off a lot faster.

Answer 8

You will still owe the money, but it often can be attached to your loan for the house you are buying.

Answer 9

You will have to come to the closing with money. The title company will not be able to transfer the deed to the new owners until all liens are paid off.

Answer 10

you keep making payments until the loan is paid off.