It is indeed possible to sell your home during a loan modification. That is if you haven’t signed on the dotted line as of yet. Recent reports in our forum have been detailing mortgage modification contracts with terms that state the borrower cannot sell the property in the next five years without prior mortgage servicer approval. We at LoanSafe.org are not sure of the legalities involved in this type of contract language and we urge all homeowners who receive this type of contract to consult with legal counsel.
The loan modification process tends to be one of the most stressful and confusing tasks one will ever experience. Some people come to a decision that the stress is not worth it and they want to move on with their life as quick as possible. This will many times leave the homeowner with no other choice but to attempt to sell their property
In fact, selling your home is one of the alternatives for homeowners with upside down mortgages. If you have an upside down mortgage that means you owe more on the mortgage than the property is currently worth. Currently about one fourth of all American homeowners are upside down on their mortgage.
For homeowners out there in this situation you are not going to be able to sell your property the traditional way. Since you no longer have value in your property to cover the remaining balance of your mortgage you must sell your home through a short sale. A short sale however is not guaranteed because your lender must approve the sale.
However, the real question is whether it would be advisable to sell your property because this would likely be a short sell and would result in a loss for you. A short sale means that the purchase price would not be sufficient to cover your outstanding loan. Thus, the bank or lender will need to approve the short sale transaction because you will still owe the difference between your outstanding loan and the selling price. In some occasions, the bank may forgive the difference and you will be free of your obligations. However, more often than not you will still be stuck owing the difference and will be forced to pay taxes on the amount with a 1099.
A loan modification would be beneficial for homeowners who have mortgages that are upside down, because you get to continue living in your home and your mortgage payments will be adjusted to fit your current budget. But as we all know loan modifications are difficult to achieve and are never guaranteed.
- What about homeowners that still have equity in their home?
For borrowers who still have equity in their home, they should be able to sell their property no problem. There is no rule or law that prevents homeowners from selling their home if they are currently pursuing a loan modification. All you need to do is let your servicer know that the modification is no longer needed because you are going to sell your home. Contact a realtor and get your home on the market as soon as possible. New home buyers are sometimes hesitant at first to make a purchase because the economic downturn so it is crucial to get your property listed right away!
You can benefit from this situation if you are able to find a home that you could rent for a monthly rate that is much smaller than your previous mortgage payments. Thus, if your monthly rent is less than your previous monthly mortgage you have managed to achieve some monthly savings. You can make use of these savings later to purchase a new home, which would not be a problem because your credit score was not affected.