Selling For Less Than The Mortgage

In cases where you are desperate to sell your home and have received an offer that is less than its mortgage, you may find yourself in a precarious situation. Individuals in this situation often ask, "Can a home seller sell a home for less than its mortgage?" The answer for that is yes. Although the real estate industry is generally a consistently growing one, there are cases where a home seller has to sell their home for less than its mortgage. There are many reasons why any home sellers may have found themselves in this situation. Regardless of the reasons, it is important to understand the complexities involved in this particular case.

A Short Sale

In a situation that is known in the real estate world as a "short sale," it is possible for a home seller to sell their home less than what they still owe on the mortgage. However, prior to approving this sale, the home seller must first consult with their lender. In many cases, a lender is willing to allow the sale to go through in order to split the difference between the sale price and the loan amount, which still needs to be paid. Then again, a short sale is an extremely complicated process that becomes even more difficult in cases where the loan has been sold to the secondary market, as it requires permission from secondary-market companies. In instances where the loan was at low-down-payment mortgage with private mortgage insurance, the mortgage insurance company involved in insuring the low-down loan must be involved with the lender in the event of a short sale.

Additionally, a soft sale involves as much, if not more paperwork than an original mortgage application. However, the difference is that you must prove that you are without cash flow instead of proving your financial stability. Although the advantage of selling your home for less than its mortgage is that it creates a better financial alternative to bankruptcies or foreclosures, it still can create financial turbulence though following the sale. In addition, applying for a short sale may reveal financial difficulty caused in the past that you did not reveal when applying for your original loan mortgage. Consequently, your lender may consider your past silence as fraud.