My seller cannot sell his home....he owes more than it is worth.

By
Real Estate Agent with Keller Williams Properties, Weston FL

Selling Real Estate in Pembroke Pines Florida is confusing enough these days and to make matters worse is getting a client who is attempting to sell the property that is worth less than they paid for it...but which direction should they take? 

It all started 8 months ago. I have a tough listing that I picked up long ago. The seller knew me from my marketing. Normally I would not take this property but he only wanted me to list their ""property for sale." I explained to him the price ranges and gave him the best comparables I could find. Unfortunately "the market seems to have gotten worse before it is going to get better" and the problem is they owe more than it is worth. I explained this to them and they had said they were willing to price it above the search threshold I recommended.

They currently owe just about what the house could sell at...but they would still have to come up with about 35-40k to pay all closing costs and commissions. It is an even tougher situation as the sellers are now divorced and although they are on friendly terms...they want to move on. They also have an apartment that they are drawing equity from so they can compensate the money they do not have to pay bills. I asked them if we could get a price close to the appraised value would they listen. They would but I explained that they would have to borrow money to cover the 35-40k they would need to bring to closing.

I also suggested renting the property but they are not sure about this as the rents they can command would still not cover the expenses they pay out. I told them the heart wrenching last resort of going into foreclosure and negotiating a short sale. They are still not willing to do this unless it is a last resort. The real problem was when they purchased the home it appraised for about 30K more than it is worth now. They had a new appraisal completed and if they were to refinance they  would still be below what they need to cover. Plus their closing costs would also make it not worth doing.

I mentioned this other property they own and I told them to see if they could draw the equity and put it on the side so we can sell the problem home and he could get out. He might consider this but I am not sure if that is the best idea. This is a tough situation as I really do not want to abandon them and they are very nice people and really want me to sell it but the obstacles make it difficult for all.

I wonder what other solutions they might have.                                            

Posted by

Neal Bloom

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Rainmaker
381,857
Leigh Brown
RE/MAX Executive Realty - Charlotte, NC
Broker/Owner - Charlotte NC
Man, I just lost a great comment to the HTTP 500 error!  Anyhoo, was mentioning that I've done the same thing that Missy mentions-a non-secured personal note.  It's often about the only option-and local banks are far more likely to go for it than the big boys.
May 31, 2007 09:41 PM #19
Rainmaker
98,205
Robert D. Ashby
Robert Ashby Photography - Miramar, FL

Neal,

They may have some other options depending on their overall situation and if they have a little bit of time.  I cannot guarantee anything as I do not know their overall status, but I could take a look at it if they are willing.

I recommend staying away from anything related to short sale, deed-in-lieu, or foreclosure as all are damaging to their credit ratings and they will need that credit to move on.

May 31, 2007 09:53 PM #20
Rainmaker
335,248
Ann Cummings
RE/MAX By The Bay - NH and Maine - Portsmouth, NH
Portsmouth NH Homes - Service With a Smile!

Robert - my clients who did a deed-in-lieu were told by the bank that it would not affect their credit at all.  Since you're a mortgage officer, can you tell me how it does affect one's credit?  If they were not told the truth, I'd like to know so I can learn more about this.

Thanks,
Ann

May 31, 2007 10:04 PM #21
Rainer
32,716
Beth Butler
Beth Butler - Big Mouth Consulting - Miami, FL
I was going to also recommend the deed-in-lieu - which we have been doing some of recently and thought it was to preserve credit... so I am curious about Robert's comments.  I see you have exhausted other avenues... I am afraid we will be seeing much more of this.
May 31, 2007 10:43 PM #22
Rainmaker
138,518
Kaye Thomas
Real Estate West - Manhattan Beach, CA
e-PRO, Manhattan Beach CA
 Not only will a deed-in-lieu affect their credit but they will probably have to pay money to IRS on the forgiven debt.. this is stuff an agent really needs to know about before giving advice.. I suggest they consult with  their CPA or a tax attorney first.. ramifications can be major
May 31, 2007 11:25 PM #23
Rainer
25,488
Gwendolyn Wrigh
Victory Virtual Solutions - Beaufort, SC
Victory Virtual Solutions
Wow, this is a doozy, huh? I hear stories like this all the time unfortunately...
Jun 01, 2007 12:51 AM #24
Rainmaker
333,713
Thesa Chambers
Alpine Real Estate - Bend, OR
Principal Broker - Licensed in Oregon
It sucks when you do all you can and your client needs an impossible miracle - I feel your pain
Jun 01, 2007 01:33 AM #25
Rainmaker
574,889
Neal Bloom
Keller Williams Properties, Weston FL - Weston, FL
Realtor CRS-Weston FL Real Estate

Kaye,

Yes...they know all the ramifications...unfortunately they bought this home when homes were flying off the counter the other problem was they bought this home from a Realtor who was the owner and there was that clause in the listing "not contingent on appraisal and they told me that the house appraised for what they paid..I believe it was overblown and the Realtor also gave them the wrong square footage as I have sold this model many times and it was about 200 sqft smaller then advertised..she was a terrible Realtor and that is why she moved away.

Stephanie,

Thanks for reading and stopping by..I was not expecting a easy solution to this.

Janie,

That is how I show up to meet my clients. just kidding..my other photo is the real me and if you ask Ann she would probably say that I have a little of that meez in me as she already met me in person.

Ann,

I might make that suggestion but would expect them to ask an accountant or attorney..anything is possible but I have to believe there would be some problem with their credit after any of these solutions other than just renting it and hoping the market picks up next year.

Leigh,

Don't laugh but I would lend him the money at 5% lol! but my money is tied up in one of my properties that cannot seem to get someone to close on.

Robert,

They already have a family member who is handling their possible refinance but I am reluctant to have them lose their trust of that member...I will let you know if they are interested.... Thanks for the offer.

Beth,

Anything is possible but I have to believe that there will still be IRS tax ramification's or some sort of penalty.

Gwendolin,

Thanks for your thoughts.

Thesa,

I just do not want to abandon them and it is not really costing me much to keep it..but they have the option to take it off the market.

Jun 01, 2007 07:04 AM #26
Rainer
97,931
Danny Smith
DISCOVER TEXAS HOMES - Round Rock, TX
I know absolutely Zilch about this but would this home be prime for an Auction sale?
Jun 01, 2007 07:06 AM #27
Rainmaker
574,889
Neal Bloom
Keller Williams Properties, Weston FL - Weston, FL
Realtor CRS-Weston FL Real Estate

Danny,

The problem with auctions is there is a lot of money to be laid out up front for the advertising and you have to pay much higher fees to the auctioneers and in this case the seller would probably be better off doing a short sale or just lowering the price and coming to closing with the 35-40K.Thanks for your concern.

Jun 01, 2007 07:11 AM #28
Anonymous
Anonymous
Your clients are indeed in a difficult situation, particularly considering that they are going through a divorce. If they don't refinance and want to save their credit from damage,I believe that Jim's idea of a lease with the option to buy could work out for them. This kind of arrangement could buy them some time to get the money they may need to close, and it's also a good way to entice a prospective buyers who otherwise may not have enough money for a down-payment. 
Jun 01, 2007 12:15 PM #29
Rainer
49,084
Dianne Barody
Century 21 AmeriSouth Realty - Pensacola, FL
Pensacola Florida Real Estate
Neal:  I think you have done all that you can do.  I feel bad for sellers in this situation.  Our market is still so slow and you are right, prices have fallen.
Jun 01, 2007 01:05 PM #30
Rainmaker
574,889
Neal Bloom
Keller Williams Properties, Weston FL - Weston, FL
Realtor CRS-Weston FL Real Estate

Griselda,

Well that was offered to them but it still does not solve the problem of the price so I am not sure about that option.

Dianne,

How are you? You following me again? LOL!

I feel bad too...but they are relying on me to come up with something. The problem is if we go with Ann's option and the bank says yes...then I am basically out with nothing to show and I do not work for free..but I was willing to offer that to them.

Jun 01, 2007 02:29 PM #31
Anonymous
Anonymous
It's always tough when they have many options and none of them are good.  Best of luck!
Jun 01, 2007 05:13 PM #32
Rainmaker
574,889
Neal Bloom
Keller Williams Properties, Weston FL - Weston, FL
Realtor CRS-Weston FL Real Estate
Thanks for stopping by Terry and thanks for your comment.
Jun 01, 2007 05:15 PM #33
Rainer
54,602
Joe Dallorso
Ocala, FL
Ocala Real Estate

Neil

We're seeing a lot of "investors" up here in Ocala who bought houses at pre construction prices thinking of selling them for a profit as soon as they were completed who are now in a similar situation. What I wonder is how any one could have recommended such as investment in 2006?

Jun 01, 2007 05:41 PM #34
Rainmaker
335,248
Ann Cummings
RE/MAX By The Bay - NH and Maine - Portsmouth, NH
Portsmouth NH Homes - Service With a Smile!

Regarding the deed-in-lieu I mentioned above, we did, in fact, have an attorney involved in every step of the way, and my sellers' credit was not affected at all.  They will receive a 1099 at the end of the year, and will have to pay taxes on the forgiven debt, but that was FAR better than the alternative of being foreclosed on or declaring bankruptcy, which they had been considering.

The bank assured them that their credit would not be harmed and the attorney confirmed that, and so far on their credit reports, that has been confirmed as well.

I would never take it upon myself to offer legal or financial advice and strongly urge my clients to seek legal and/or financial advice in any kind of situation such as this.

Ann

Jun 01, 2007 07:56 PM #35
Rainmaker
574,889
Neal Bloom
Keller Williams Properties, Weston FL - Weston, FL
Realtor CRS-Weston FL Real Estate

Joe,

That was spreading all over Florida.

Ann,

The only problem is the bank has to accept it and he might not  I might be totally out of the deal in that case.

Jun 01, 2007 08:06 PM #36
Rainmaker
335,248
Ann Cummings
RE/MAX By The Bay - NH and Maine - Portsmouth, NH
Portsmouth NH Homes - Service With a Smile!
Hi Neal - if they do choose that route, you would be out of the deal.   For my clients, it was best for them, and that's what really counted in this case.  I was out of it, but they ended up being able to get out of a bad situation and sang my praises all over the place.  They had also, over time, given me several referrals and nice references.  It was what was best for those clients.
Jun 02, 2007 06:03 AM #37
Rainmaker
574,889
Neal Bloom
Keller Williams Properties, Weston FL - Weston, FL
Realtor CRS-Weston FL Real Estate

Hi Ann,

I know what you mean..do I give them an out and I end up with only praise or possible referrals..we shall see..thanks.

Jun 02, 2007 08:39 AM #38
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Rainmaker
574,889

Neal Bloom

Realtor CRS-Weston FL Real Estate
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