How do I get rid of a house?
January 27, 2010 8:33 AM   Subscribe

Moved across country. Can't sell my house. Can't find a renter. Can't afford to keep paying the mortgage. What are my options?

The house is in Pennsylvania. I'm now on the other coast---we moved for a new job. My family and I have a comfortable income, but we won't if we have to keep paying the mortgage on the PA house and also paying for housing (and daycare, and all the other expenses of daily living) on the west coast. Oh, and we don't get paid during the summer.

The house has been on the market for 8 months. There have been a pile of showings (upwards of 200, probably) and a couple of nibbles, but nothing came through. It's listed to rent, but no renters so far. We're not --- quite --- underwater on the mortgage, but if we lower the asking price much more, we won't make enough to be able to cover the mortgage, and even if there were to be a buyer, they're pissy enough in this market to expect to be able to demand to buy a chunk under the asking price.

We really like our realtor and would like for him to get some money out of us, but we're running out of options.

So, what are some options, and how to they work? As I see it, we can

--keep paying and hoping that a buyer comes along. So far, this hasn't worked. We are not in a position to "stage" the house (it's vacant) from across the country.

--Stop paying. This leads to badness. but...

--Try to give back the house to the bank. (Deed in lieu of foreclosure?) Not sure that this will work in PA, which apparently is a "recourse" state, whatever that means.

Are there options I'm missing?
posted by anonymous to Work & Money (7 answers total) 2 users marked this as a favorite
Two words: short sale. Depending on the market in your area, it might be worth the temporary hit on your credit.
posted by golden at 8:50 AM on January 27, 2010

You've chased the market down for 8 months without a sale. You need to answer some hard questions for yourself:

1 - What is the biggest equity loss you can take to satisfy your mortgage obligation?

2 - Subtract that loss from the current asking price of the house - is that enough to make the house sell RIGHT NOW?

3 - What is the minimum amount of rent you can charge and still cover your mortgage payment + taxes + maintenance? If the rent is not enough to cover your expenses, how much are you willing to lose monthly in order to stay current on the mortgage?

4 - Is that rent (or rent + whatever you're willing to eat as monthly loss) enough to get the house rented RIGHT NOW?

If your answers to both #2 and #4 are NO, then you should consider consulting a lawyer for your options on defaulting/foreclosure, short sale or deed in lieu. Remember to factor in your calculations above the possible hit to your credit rating and resulting increased cost/limitation in access to credit for the period that a default may stay on your credit record.

Other factors to consider:

-It's estimated that in 2009 upwards of 75% of the funding for mortgage purchases/refinances has resulted from some kind of government support, all ultimately backed by the Federal Reserve's 1.25 Trillion MBS (Mortgage Backed Security) purchase program.

That program is scheduled to end in March. The impact on mortgage rates is not predicted to be good, and I don't think I have to spell out for you the possible resulting impact on sales prices.

-The Obama administration has jawboned a lot about modifying mortgages for borrowers in trouble. To date there have been very few (as a percentage of troubled mortgages) succesful modifications. Perhaps this may change in the future as well...
posted by de void at 8:51 AM on January 27, 2010 [1 favorite]

from the blue a couple months back: The Moral Dimensions Of Ditching A Mortgage
posted by namewithoutwords at 9:31 AM on January 27, 2010

I'd say you need a real estate lawyer familiar with the laws in PA when it comes to your options with regards to not paying. You should be able to get a phone consultation with one. It'll be a well-spend couple hundred bucks.

If you instead want to sell I'd suggest several things.

One, this "we're across the country so staging the house isn't an option" stuff? You need to get over this no-can-do attitude. You've failed to accomplish what you want for eight months now, stop dismissing things as not doable.

Airfares continue to be silly cheap. If your choice is between spending $400 on a round-trip and a trip to Goodwill vs staying under this $200,000+ mortgage, well, I know what I'd choose.

Alternately, there are people who stage houses. No, it's not free. But hanging onto this albatross isn't free either - every month you make a mortgage payment and if you're in the first 15 years of your loan you're pissing away more than 50% of that payment on interest - potentially a LOT more.

And if you succeed in renting it out you're not going to be able to deduct that interest anymore.

The fact that you had all those showings but then no nibbles says that people think the area is interesting and the price plausible, but once they look at it they either find something they don't like or can't see themselves in the house. That means it's correctable. Either by putting more money into it with tweaks and staging or by lowering the price to offset this concern.

You may not be able to come out of this in the black. A real estate lawyer can tell you if walkaway is a possibility or if the bank will work out a deal to loan you the money for the difference between the sale price and what you owe.
posted by phearlez at 10:51 AM on January 27, 2010

Lower the price so that with your tax break from last year's payments, you break exactly even. If you can't accept that, then how could you possibly accept screwing up your credit by mailing the keys to the bank or foreclosure?

It sounds to me like you want a magic solution besides break exactly even or lose money, and none of the options you've listed are magic. I lowered my price with a negotiation clause that said if I accepted their offer, they could not ask for any remodeling, repairs or allowances after the appraisal and inspection. I suggest you do the same. My health and my financial well-being are 1000x better now than they were when I was stressing about selling my house last year, and it sat for months (like yours is doing now) until I reduced the asking price almost 40 grand.

Phantom money in your future pocket doesn't exist. Find a solution you can live with, today, because without today, tomorrow doesn't matter. Your question states that come the end of May, you will be more screwed financially than you are now; don't wait until then. Bite the bullet NOW.
posted by Unicorn on the cob at 3:18 PM on January 27, 2010 [1 favorite]

We are not in a position to "stage" the house (it's vacant) from across the country.

You can hire a home stager to do this for you.

Ask your Realtor what it is about the house that is preventing people from making offers on the house. Buyers sometimes get hung up on something that wouldn't cost you (or them, but they don't think that way) too much to change. If you have something like a carpeted kitchen, or purple laminate countertops, or a multicolored sponge painted living room, pay somebody to replace it with something boring and standard.

Your Realtor should have already called some of the other agents who showed the house, and have some feedback on what it is that people don't like about the place. 200 is a lot of showings.
posted by yohko at 5:23 PM on January 27, 2010

Seconding paying someone to stage it for you. Many people have trouble picturing how furniture will look in empty rooms, and they need to actually see a couch in the living room to get a feel for how large the room is and how it will look once their own couch is in there. The staged furniture doesn't need to be fancy or expensive.

Also, a fresh coat of paint does wonders.
posted by whitelily at 7:06 PM on January 27, 2010

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