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'Upside Down' Home Sellers Owe More Than They Get
A nontraditional mortgage and a prepayment penalty mean Kimberly Pexton and her husband will owe $28,000 at closing.
(By Kevin Clark -- The Washington Post)
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One of those consequences could be blemished credit. Taylor is willing to take that hit.
Even if he and his wife had not decided to divorce, they were not happy with their mortgage. They were not paying down the loan at all because it was an interest-only loan.
With an annual salary of $70,000, he does not have enough money for his share of the amount he and his wife will end up owing the bank. So he has asked the bank to forgive the debt, despite the tax implications. If the bank chooses to demand a check, he said he would take out another loan to cover it.
"This has destroyed me," he said.
Doug Duncan, chief economist at the Mortgage Bankers Association, said lenders don't have a uniform way of treating such a situation. "You try to restructure the loan with the borrower to encourage them to stay with the property," he said.
When that does not work, the lender usually tries to avoid foreclosure because it is expensive. That's when the negotiations begin. The usual recommendation is that the seller contact the lender as soon as possible to work out a plan.
Dorothy Hall, another agent with Re/Max Leaders in Purcellville, said that in the short sales she has handled recently, she has had to present the lender with the buyer's offer and prove that the seller cannot get any more than that.
"Sometimes they will come back and say, 'This is the lowest we are willing to accept on the payoff of this loan,' " she said. "If that's the case, we have to go back to the purchaser and ask if they will pay more for it. Sometimes they will take it because they feel it's worth it. Other times, they will walk away."
