Seven Most Common Options When Selling A Home

Normal Sale

• Equity is Positive (Note: Liens & Penalties divide by .92=Rough Estimated Break-Even Selling Price)
• Sales Price minus (Loans, Liens, Prepayment Penalties and Selling Expenses)=Net Positive Cash to Seller

Wait (Increase Equity)

• Equity is Not Sufficient For Seller To Sell in Current Market
• Seller Stays in Home, Continues Making Payments and Waits Until Sales Prices/Values Improve
• Equity Will Improve but Only as Real Estate Market Improves
• Seller can List and Sell in Future once Property Appreciates and Seller has Sufficient Equity
• Seller Risks that Interest Rates and Prices Also Go Up for the Property that Seller Intends to Purchase

Negative Equity (Seller Brings Cash)

• Equity is Negative (Liens and Selling Expenses are Greater than Sale Price); But Seller is Solvent
• Sales Price minus (All Liens and Selling Expenses)=Negative Amount, Potential Loss by Seller's Bank(s)
• Seller Has Cash to Make Up the Difference: Brings Cash to Escrow to Pay off the Negative Amount
• Seller's Bank(s) Approval Not Needed Because There is No Actual Loss to Bank at Closing
• No Damage to Seller's Credit

Short Sale (Seller Signs Personal Note)

• Equity is Negative (Liens and Selling Expenses are Greater that Sale Price); But Seller is Solvent
• Sales Price minus (All Liens and Selling Expenses)= Negative Amount, Potential Loss by Seller's Bank(s)
• Seller Doesn't Have Cash to Make up Negative Amount to Bank (But Seller Also is Not "Wiped Out")
• Seller Negotiates and Signs Unsecured Note for Loss Amount with Bank, if Bank Agrees, During Escrow
• Bank(s) Might Approve Because of No Actual Loss, But Generally Only as Last Resort to Foreclosure
• Property Sells, Closed Escrow: Seller Makes Payments to Bank until Unsecured Note is Paid Off
• Seller Gets No Money at Closing
• Seller's Credit Rating Might be Damaged, Likely Not as Bad as with a True Short Sale or Foreclosure

Short Sale (No Seller Resources Available)

• Equity is Negative (Liens and Selling Expenses are greater than Sale Price); Seller is Not Solvent
• Sales Price minus (All Liens and Selling Expenses)= Negative Amount, Will be Loss by Seller's Bank(s)
• Seller Accepts and Offer Subject To Seller's Bank Agreeing to Accept Less than Full Payoff
• Bank Might Forgive the Net Loss if Seller Qualifies (Foreclosure Appears Inevitable to Seller's Bank)
• Bank Hopefully Agrees-Generally Only if Foreclosure Appears Inevitable (Seller is "Wiped Out')
• Seller Gets No Money at Closing
• Seller's Credit Rating is Damaged (Sometimes not as bad as with Foreclosure; Seller: Consult With CPA)

Bankruptcy

• Seller Is Not Solvent; Seller Consults with a Bankruptcy Attorney to see if Seller Qualifies for Bankruptcy
• Seller Might Be Allowed to Remain in Property Longer than with Foreclosure (Seller; Consult Attorney)
• Seller Might Still be Allowed by Bankruptcy Court to Sell the House (Seller; Consult Attorney)
• Seller's Credit Rating is Damaged (Sometimes not as bad as with Foreclosure; Seller; Consult With CPA)

Foreclosure ("Walk Away")

• Seller Stops Making Payments
• Bank Eventually Forecloses (NOD filed, then Notice of Sale posted; Home Sold by Bank, or Taken Over)
• Foreclosure Process is Public Record
• Very Major Credit Rating Damage for Seller; Usually Remains on Sellers Credit Report For Seven Years

THIS POST IS FRO INFORMATION PURPOSES ONLY. ALWAYS CONSULT A TAX ADVISOR AND/OR ATTORNEY ABOUT POTENTIAL RAMIFICATIONS BEFORE SELLING YOUR HOME IN A DISTRESS SITUATION.