The Situation
Bill (not his real name) has owned his home for nearly two decades. He and his wife Amanda have made many memories, raised a family, and built a life in that home. Like many homeowners, he refinanced his mortgage to cover a few major expenses, including college costs for their daughter Lydia.
Now his monthly payment is too high for him to handle. Even worse, Bill owes $170,000 on a home that wouldn’t appraise for more than $100,000. That's $70K in negative equity (yikes!).
Bill contacted his mortgage company about accepting a short sale, but was denied because his payments are “too current.” Bill played by the rules and paid his mortgage and bills on time – even during the lean years when Lori lost her job. To Bill, it doesn’t seem quite fair that loan modification help and short sale approvals are going most often to those who didn’t pay when promised.
Bill can't afford to stay in his house, so he has considered three options:
- Sell the house - "I can't. I’m upside-down and the bank told me they won’t approve a short sale."
- Get a loan modification - "I tried. The bank says I don’t fit their criteria since my payments aren’t behind."
- Move out and rent the house - "I would, but the home needs a few upgrades and some cosmetic repairs to make it ready to rent. I don't have $4000 - $5000 to fix it."
Bill was ready to give up and just let the house go. Even though foreclosure would ruin his credit and certainly is not what he wants to do, he thought he had no other choice.
Two Possible Solutions
We worked with Bill to suggest a couple of solutions he'd never considered.
Rent the home at a discount. Bill can get his home filled fastest by offering a better deal than any other rentals in the neighborhood. If the going rent is about $1075/mo, Bill might rent his house for $850/mo to someone who is comfortable with a paint brush (none of the repairs are safety-related).
What does Bill get? Time to let home values to improve while someone else is paying on his mortgage. Bill's handy tenant gets a nice house that they can make their own with a huge discount on the monthly payment.
Sell the home with owner financing. If Bill's buyer is a first-time home owner, they might be eligible for $8,000 in a tax refund for purchasing Bill's house. Bill and his buyer could agree to split the tax refund – say, $4000 paid to Bill as a down payment and $4000 used by the buyer for upgrades.
What does Bill get? Once again, Bill gets time to let home values improve. Bill's buyer gets a nice house to own with an affordable down payment and easy approval without jumping through the hoops that a bank would require. Bill might even give his buyer 10 years to refinance and pay him off. In the meantime, Bill's mortgage gets paid down and there is more time for the house to return to a more “normal” appraisal value.
Bill is now considering these two new options. We'll report back when we get an update on his progress.
Do you have a situation you'd like us to help you work through? Send us an email at SellOrDieBlog@ClosedFast.com. Every month we'll choose one seller to profile on the SellOrDie! blog. We guarantee you'll receive some creative solutions, absolutely free, and with no obligation whatsoever.
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