Facing Foreclosure: The Selling Option

Houe uphill

At some point, you might find yourself up against a rock and a hard place.  Been there, done that, I can tell you all about it.  The most important thing to remember is that creativity always trumps conventional thinking in times of need.  Especially when a deadline is looming.  The bank, debt collectors, almost anyone you have ever done business with, is now filling your mailbox mailing with letters,  phone calls fill up your voice mail, text messages blow up your phone – it never stops!  If you find yourself in this situation these are IMMEDIATE SOLUTIONS that can put you in a better situation, (depending on your exact situation):

  1.  CASH OFFER – This is your FASTEST path to cash.  Selling your house to a buyer that offers cash will allow you to sell your home in a no-nonsense way.  The buyer just wants to know, after paying off the loan on the home, that they will get free and clear title.  As fast as the title company can clear title, the deal will close.  If you are upside down with your loan, meaning your house is worth less than what you owe it is strongly recommended that you request a cash-for-keys condition in counter-offer to the buyers offer.  In this situation, the bank is agreeing to accept less money than what is owed on the home, but it is reasonable for a seller to be allowed “walking money” when the deal closes.  That “walking money” is what the seller will use as a security deposit and moving money towards their next residence.
  2. STAY IN YOUR HOUSE – A sale/leaseback is the most common way for a seller to sell their property today, lease the property back from a new buyer, and then purchase the same property back in the future.  The seller can either sell the property at a discount to the buyer so that the seller can purchase the property back at today’s value, or sell the property at today’s value and purchase the property back at a higher price in the future that is agreed to by the seller and buyer.  The advantage a sale/leaseback offers is that it allows a seller to geographically stay put and enjoy the benefit of their present location.  Examples would be a seller that needs to stay in a specific school district, a seller that receives medical services from a specific medical professional and military personnel that have pending orders to ship out, but have not yet been assigned a new base location.  The buyer must be an investor who has no intention of ever moving into the property whose primary goal is to rent the house for income.  Additionally, the seller should consult their agent how to draft the paperwork to ensure the future purchase date is specific and agreed to by both parties.  Contracts that state the “…seller can buy back the property in the future…” is too generic and must state a specific price, date, any extensions of time agreed to and how those extensions will be communicated by both parties.  For a seller that is resistant to moving or leaving, this method can be their best selling solution!
  3. LIST WITH A REALTOR – This method, while not as fast as accepting a cash offer, wastes minimal time because the realtor will market the property on the MLS system, giving the property maximum exposure to the market.  Additionally, an agent will work with the seller to sell the property for the highest and best offer based on the terms, conditions and price offered by the buyer that the agent feels has the highest probability of closing the deal.  Nothing can be worse than entering in to an escrow that doesn’t result in a sale.  Agents work very diligently with buyers and buyers agents to only do business with buyers that offer the highest probability to close.  A fee is paid to the agents to negotiate through all the offers and potential buyers, a process that allows the cream to rise to the top, to ensure a sale happens to the satisfaction of the seller.  Any seller who does not want to waste time with their property sitting on the market will list with a realtor to give the property the maximum exposure to draw qualified offers in the shortest period of time.
  4. FOR SALE BY OWNER – A solution where the seller representing themselves and the property that is being sold in order to work directly with buyers.  Although this process will eliminate the fee’s associated with listing with a realtor this method from my experience wastes more time on the market, unless the price, terms and conditions are highly favorable to buyers.  Rarely do I see sellers price or give favorable terms to buyers in their self-made-home-marketing.   A for sale by owner sale can generate an immediate buyer but the owner who is the seller now must open the escrow and ensure all of the deadlines are met according to the terms and conditions outlined in the purchase and sale agreement.  They must also be familiar with how to read the terms and conditions or hire a lawyer to explain the contract to them to ensure contingencies are removed according to the contract terms.  The advantage owners see in this solution is in not paying agent fees.  The disadvantage is that the property will not be marketed on the MLS for agents to show buyers eager home buyers.  This could make the buyer pool for the property significantly smaller for the property.
  5. HOUSE TRADE –  This is the SLOWEST path to cash and potentially a non-cash transaction where the seller is trading one property for another property.  Although a trade can take longer to match sellers of different cities and states together, this is a method of disposing a property where Seller A can assume the debt payments of Seller B and vice-versa in order to keep all financing in place and require neither seller to apply for a new loan.   A trade can also get creative in the event one property is valued much higher than the other property.  An example of this might be where a California seller with a property valued at $500,000 wants to trade a property with a North Carolina resident who is selling a property for $200,000, and wants to buy a property in California.  Since the California seller’s property is much greater in value, the California seller can offer to trade her property for $450,000 where the North Caroline seller sells at $200,000 and then owes the California seller another $250,000.  That difference can be turned into a promise to pay by the North Carolina seller.  In this scenario the California Seller moves into the North Carolina property for no money down, collects $250,000 of payments over ten years, and traded the property at near asking price.  The North Carolina seller moves into the California property with no money down, traded their property for $200,000 (full asking price) and makes the additional $250,000 payments over ten years.  In this scenario there is no upfront money exchanged by either party.  This can be a very clean transaction but it is strongly encouraged that legal counsel for both parties before entering in to the agreement.
  6. REFINANCE YOUR LOAN – This is a non-cash option.  This can be the most obvious solution, but, is not relies on the borrower’s creditworthiness.  With this solution a borrower that is still creditworthy might be able to get the property refinanced with little difficulty.  But . . . in the case of defaulted borrowers, my experience has shown me this solution has the least success.  Again the creditworthiness of the borrower is critical with this solution!

These are just a few of the options available to owners that are facing the possibility of foreclosure.  Like all solutions it depends on a borrowers situation at that time.  There are no guarantees with any of these solutions.  It is also strongly recommended that none of these solutions be executed until a borrower seeks the advice of legal counsel and a realtor in the event a realtor will be hired to represent a seller.

Any questions or requests feel free to direct your messages to krauseandco@hotmail.com.

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