Dumping The House Is A Smart Move
Annie and her husband are trying to sell their home in Maine, and there's been no interest in it. Should they look into doing a short sale or stick it out?
QUESTION: Annie in Montana and her husband are trying to sell their home in Maine, and there’s been no interest in it. Should they look into doing a short sale or stick it out? The price has been dropped quite a bit since they put it on the market. Dave recommends finding another real estate agent.
ANSWER: Look a little harder and get a better agent and get the thing on the market. If it has to be sold below what you owe on it, then that is going to be a short sale, and you’re going to be behind five or six months on your payments, and your credit’s going to be destroyed before they’re willing to do that. A short sale is just to the left of a foreclosure. The only reason a short sale is better than a foreclosure is because they don’t sue you for the difference. But as far as your credit goes, you were still a deadbeat, didn’t pay your bills, and they almost foreclosed. That’s right where a short sale is.
As long as you can pay the bill you owe, you should pay the bill you owe. If you’re unable to pay the bill, then you’re in a foreclosure position, and I would short sale before I foreclosed.
If you burn $1,200 a month, that’s $14,000 a year. If somebody made you an offer after two years on the market where you’d lose $20,000 and you had to borrow a little bit of money in order to get rid of this house, that’d probably be a pretty smart move. But if they want you to lose $50,000, you could probably pay $1,200 a long time before you got to $50,000. You have to set yourself a mark as to how far in the hole you’re willing and able to go and get rid of this thing and dump it. Up to about a $20,000 loss makes sense in this discussion. Past that, you start thinking about renting it out and keeping it a while until the market recovers. I’d rather have $20,000 in a bank loan than a house in Maine, wouldn’t you? Then you know the draining of your financial blood has stopped.