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How can sellers avoid $40K loss, tarnished credit?

November 17, 2008

By Benny Kass
Inman News

DEAR BENNY: My son and his wife own a house. Just before the housing market downturn, they moved 1,000 miles away to pursue a much more lucrative-paying career for him. Since then they haven't been able to rent the house, and if they sold it they would lose $30,000 to $40,000. Even though he makes great pay, they are barely squeaking by having to make that house payment and an apartment payment. Because they have kept up with the payment their credit rating is still excellent. Is there anything they can do to unload the house without taking a big hit on their credit rating or losing a lot of money? --Janice

DEAR JANICE: What is the loan to value (LTV) of your son's house? Is there any equity left or is it "upside down"? That means that the mortgage is higher than the current value of the house.

If there is some equity remaining, I would arrange a sale at any cost, just enough to pay off the mortgage and a real estate commission. In fact, your son and daughter-in-law should try to negotiate a lower commission with any real estate agent that lists their house.

If this is an "upside down" situation, then they should talk with a lender and see if a "short sale" can be accepted by the bank. This means that the house is placed on the market for sale at a price below its appraised value, and everyone (seller, broker and lender) take a hit. But if all goes well, someone will buy at the reduced price.

There comes a time in everyone's life that you have to "bite the bullet." Your son has been paying the PITI (principal, interest, taxes and insurance) for several years. Had they significantly reduced the price two years ago, they would have taken a loss on the sale, but would not have to carry that house as well as their present location.

My suggestion: There is no guarantee when this "meltdown" will end. Do whatever it takes to get rid of the house as soon as possible.