Unsuccessful Home Seller Seeks Alternatives
QUESTION: My wife and I are attempting to sell our house because we are moving to another state. The economy and, consequently, the housing market has been very sluggish here for some time. It is very possible that we could be forced to sell at a loss, which we cannot afford to do. Therefore, we are searching for alternatives to selling our home.
One method we are considering is a “deed in lieu of foreclosure.” I have been frustrated in my attempts to obtain information about this procedure from both our mortgage company and the local FHA office; each claims the other is responsible for the decision and handling of the matter.
How does this work and who is responsible for accepting and handling the change of possession? What are the benefits, disadvantages and repercussions? How will this affect our credit rating if we attempt to finance a house in our new location?
Our mortgage is a 30-year, assumable FHA loan fixed at 9%. Our monthly PITI (principal, interest, taxes and insurance) is $600. We have owned the home for 2 1/2 years and thus have paid very little on the principal. We have no trouble making the monthly payment and have never been late with a payment, but do not have the reserves to absorb a $2,000 loss.
ANSWER: Let’s say that the Department of Housing and Urban Development, which administers FHA loans, is a sort of umpire with teeth. While the ultimate decision as to whether to accept a deed in lieu of foreclosure or not is in the hands of the lender, HUD can strongly advise the lender on the matter. Believe me: The advice is heeded.
Your best bet is to get HUD’s blessing first, and you should contact either the director of development or the director of management in your local HUD office, my source within HUD recommends.
The key consideration with HUD is your intent in seeking the deed in lieu of foreclosure--simply put, a quit-claim deed turning the home back to the lender and keeping a foreclosure off your record.
But there’s a problem here, my source indicates: If you want the deed in lieu as a convenience--to spare yourself a loss on the sale of your home--HUD isn’t likely to go along with the idea.
“If he’s been transferred on his job and the only alternative is to walk away from the house,” my source adds, “then we would probably advise the lender to give the deed. But I don’t see much evidence of that here. If he does simply walk away from it, of course, then he’s going to have real problems establishing credit somewhere else.”
If you can persuade HUD that a deed in lieu of foreclosure is the only way out--short of walking away from the house--then it will pass that on to the lender. But, if you’re simply trying to duck a loss (FHA has had plenty of that, itself), it’s going to be rough going.
How to Find a Seller to Carry Mortgage
Q: We would like to buy from a private seller when we move back to Illinois. We really need the seller to carry the mortgage. I recently read that there certain benefits for the seller. Do you have any suggestions to help us find such a seller? We own a home here that we bought this way and it has worked out great.
A: How did you find such a seller for your current home? Watch the real estate advertisements and look for the tell-tale “OWC” notation (owner will carry). Also, all real estate brokers have lists of such sellers. Yes, there are definite advantages to sellers who don’t need their equity out in a lump sum.
1990 is a nice clean year to start a meaningful New Year’s resolution--like saving thousands in mortgage interest, cutting years off your payoff and building up equity fast. Our leaflet, “Free and Clear: Getting the Mortgage Monkey off Your Back,” explains how. Send a long, stamped, self-addressed envelope and $2 to cover costs to Don Campbell, P.O. Box 15273, Phoenix, Ariz. 85060.
