Real Estate

No equity and trying to move…what to do?

If you are in a situation where you must sell and the reality of the market in your area means that you will come to the closing table with money, you are not alone.  This is what many people are facing right now…so what do you do if you do not want to sell short or allow the bank to “take the house back”.

Unfortunately, it just depends on your situation.

If you absolutely need to move, you have three options…you can sell the house for what it is worth in today’s market and come to the closing table with money or rent the house out.  Your third option is to stop making payments and ask the bank to allow you to do a short sale, but remember that they can come after you for the difference.  Even if you agree to no deficiency judgement, beginning in 2011, lenders will have 3 years to file a judgement against you and come after you for the money…especially if they can establish that there was no hardship.

Sometimes selling is the better option so that you can move on and you never know what the market is going to do.  You can hold out and rent the home, but it could take years to build the amount of equity you need and for the home prices to raise enough to sell without bringing money to the closing table.  During that time, you are holding the property which can become a burden.  Renting is an option, but there are many times that renting the unit will not cover your mortgage…costing you money every month.  Fortunately you can write this off, but you are now a landlord which comes with its own challenges.  Additionally at the end of renting your unit, you may still not be able to sell at a price that will allow you to break even.

If you can not afford the money it would take to come to sell the home at present market value then renting is many times the best option.

One thing that is not a good idea is listing the home outside of market value to try to recoup your costs This will only end in disappointment.  First you will likely have the home on the market for a long time and then end up renting anyway or settling for the price that the market will bear…all the while making the payments every month while it is on the market.  Whereas if you had priced the home correctly in the first place, it would have moved in a reasonable amount of time.  Additionally, even if you receive a contract for a higher than market price, it will likely not appraise for that amount.  This means you will have to renegotiate the sales price or void the contract.  This is frustrating and disheartening for everyone involved.

If you do not need to move…stay put for a while…you at least have a place to live while you are paying the mortgage.  It may not be where you want to be for the time, but try to work out a plan where you make larger principle payments every month to reduce your principal and gain more equity in the home before putting it on the market.

There are so many facets to this situation and it is certainly a dilemma.  If you are in this situation, consult your lender and possibly a CPA to discuss if you will have any tax benefits to the loss you have realized….also, speak to an experienced agent that can help you create the best plan moving forward whether that is to sell, rent or wait.

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