DEALING WITH NEGATIVE EQUITY

Selling with Negative Equity or even at No-Equity can be challenging and stressful.  We often purchase homes as an asset and safe way to build equity so selling at Negative Equity stings!  Negative equity occurs when you bought when the market was up and then it dropped or can also occur if you need to sell quickly after buying a home that you did not improve.    

Here are some ideas on dealing with Negative Equity:

1.        Short Sale

A short sale occurs when the bank allows you to sell the home for less than you owe.  Short sales require the homeowner to apply for this right and it can be a long tiresome process.  The deficiency balance is often reported to the credit agencies so be prepared for your credit to take a hit. 

2.       Pay the Deficiency

Most people don’t really want to consider this option but you could ultimately pay the bank at closing for the shorted amount.  This is more feasible if your negative equity is a reasonable amount that won’t completely break your bank, but some may even choose to take at a loan to pay the deficiency.  Just depends how much you value selling the house and protecting your credit rating.

3.       Strategic Default

Some people don’t feel an urgency to sell due to financial hardship but rather the bottom fell out of the market and they fell they have a bad loan.  Some of these people refuse to continue to pay towards a home that is valued significantly less than their mortgage balance so they consciously keep their money and let the bank foreclose.  (This is not advice.  Simply what happens in the real world).  These people must prepare themselves for the windstorm of issues that come along with foreclosure.

4.       Forfeiture or Deed in Lieu

Deed in Lieu of Foreclosure means the Seller amicably give the house back to the Lender to avoid both parties having to suffer through the full foreclosure process.  This is still very bad for credit scores…only slightly better than a full foreclosure.

5.       Loan Modification

A loan modification occurs when your Lender agrees to adjust your mortgage so that it is more affordable for you.  This isn’t a guaranteed strategy as it requires approval from the bank.  Also, there are often some credit repercussions if you were delinquent on payments before requesting the loan modification (which is the norm).  Yes, it makes the home more affordable but you will still have an Upside-Down Mortgage.

6.       Lease it

Call an agent (Me) and find out the going rental rate in your area.  You may be able to lease your property and have someone else pay down your mortgage balance while you wait for your home to appreciate.  Just prepare yourself for life as a Landlord…

7.       Sell to an Investor

Investors buy homes quickly for all types of reasons.  Your house may be just what they are looking for.  If you are in the Greater Houston Area, give this company a try…

SwiftSolution Homebuyers.  


If you need more info or help with an Upside-Down Mortgage or have any other Real Estate Needs, give me a call or fill out the contact form below. I would be happy to set a free, no-obligation Consultation to see how we can work together to achieve your real estate goals.

Delrick Brown
Delrick Brown
REALTOR®
2911 S Sam Houston Pkwy East Houston TX 77047