Can I Short Sell My Home or Hand it Back to The Bank with a Deed in Lieu and Save My Credit? – Angela

“Dear Andy,

In 2006, I had a house built from the ground up for my mother to lived in. I paid the mortgage every month always on time. Never missed a payment.

My mother passed on 1/11/11, the house is now vacant. I put the house up for sell in March 2011. I paid 180,000 for the home and now owes $153,000. I can no longer afford the mortgage. Can I returned the home to the bank without affecting my credit? The home is in San Antonio, Texas. I lived in California. Very few homes are now selling. What can I do to saved my credit. Help!!

Angela”

Angela,

The value of your home will have a lot to do with the options that you have available. I understand that you currently owe $153k. What price have you had the home listed at since March?

If you have had the home listed at just enough to pay off the mortgage and pay your fees, it may be time to begin lowering the list price, even if that means it will not cover everything. If it sells for just under what you owe, then you will have the option to pay the difference out of your pocket. Yes, this would probably be the most expensive option for you, but it wouldn’t result in any damage to your credit rating. In fact, it may actually improve your credit rating by removing the debt by paying it off as agreed.

If you receive and accept an offer that is not enough to cover everything, and you don’t have the ability to pay the difference yourself, then you can always request a short sale approval from your lender. They may be able to accept that lower payoff as payment in full, and quite possibly forgive the difference. This may hurt your credit rating for the next year or two (especially if you have a very good credit rating now), but it wouldn’t be as extreme as foreclosure or bankruptcy would.

If you have tried to sell the home conventionally and also as a short sale for more than 90-180 days, you can also request a deed-in-lieu of foreclosure. This is the process where you basically hand the keys back to the lender, and they release you from the obligation. Every lender is different in their policies and procedures with a deed-in-lieu of foreclosure. Most require that you have made an honest attempt to sell the property by all means available, and they also typically require that you can demonstrate a financial hardship. Contact your lender directly to ask how to apply for a deed-in-lieu of foreclosure.

Of course you could always stop making the mortgage payments and let the home go into foreclosure. This would be devastating to your credit rating though, and should only be considered as an absolute last resort.

Good luck Angela, and please keep us posted on your progress in the comment section below.

Best Regards,

Andy is a licensed real estate broker in Massachusetts and is the founder of Northeast Properties in Norton, Massachusetts. His brokerage is designed to help homeowners in today’s difficult real estate market, specializing in short sales. Andy speaks with Massachusetts homeowners every day, helping them to address their questions or issues with short sale or loan modification. He enjoys helping consumers arrive at the correct solution to their problem, and believes that the only way to correctly do that is by presenting them with all of their options in an un-biased manner.

If you have a mortgage, short sale, real estate, or loan modification question you’d like to ask just use the online form. I’m happy to help you totally for free.