Think hard before selling real estate at a loss

Overcoming 'personal issues' may be better financial move

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Apr. 10, 2012

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Overcoming 'personal issues' may be better financial move

Benny Kass
Inman News®

DEAR BENNY: We own two houses, both of which have been on the market for approximately two years. One is our primary home, and one is a second home on the lake. Due to personal issues, we want to sell. Should we take a loss and sell, or hang tight? --Joyce

DEAR JOYCE: If you really must sell for personal reasons, then why ask the question? Get the best possible price that you can.

However, if you are still in doubt and uncertain about selling now, then I can try to provide you with some guidance. But this is your decision to make. All that the pundits and the fortune tellers can do is make suggestions; we cannot see into the future.

The economy is moving forward albeit slowly. Mortgage interest rates remain extremely low, which means that people can buy or refinance as long as they can qualify for loans under the current strict mortgage lending policies.

Why do you want to sell? If you sell your primary house, where will you live? Have you considered the alternatives? Will you have a profit on either or both houses or are both "underwater"? That makes a big difference.

Can you afford to hang in there for perhaps another year, or is the cost of the two properties (mortgage, taxes, insurance and upkeep) hurting you financially?

All these are questions you should consider before taking the plunge. I cannot guarantee anything, but I really believe that within the next year or two, the real estate market will rebound.

I have been telling my clients and my readers for years that buying a house should not be considered an investment but rather a place to live and call your "home." Obviously, if you make money by appreciation, more power to you.

DEAR BENNY: In 2009 my father died. My sister and I needed to sell his property as soon as possible, as neither of us wants to move away from our own properties.

It was a challenging farm property to sell. We wanted to sell it outright, but that was so open-ended that we decided to finance the loan for the buyers. The escrow closed in February 2011.

We have been in contract for a year, and want to check their credit score to see if they can apply for a bank loan in the near future. Can we legally check their credit rating one year into the contract? We don't want to "shoot ourselves" in the foot and make a wrong move. --Christina

DEAR CHRISTINA: I am confused. Did you sell the property to the buyers, where they received a deed to the property and the buyers signed a promissory note and a deed of trust (or mortgage in some states)? Or did you just enter into what is known as a land sales contract, whereby you keep the deed until they are able to make a substantial payment or get their own loan and pay you off in full.

For this column, I will assume the former. I hope you had an attorney assist you to make sure your loan is secured. This means the buyers sign a deed of trust (or mortgage), which is recorded among the land records in the jurisdiction where the property is located. Such recording puts the world on notice that you have a lien (a security) against the house.

So, you really are not "in contract"; you have sold the house and taken back financing. It is perfectly proper for you, as a lender, to be concerned about the buyers' financial ability.

Have you asked them if they have started the loan process? However, what is the term of your arrangement? How long do they have before they have to pay you the full amount?

I would just flat out ask them: "What's the status? Either give me your Social Security numbers so that I can obtain a credit report on you, or alternatively, get me a credit report within the next 10 days." For your information, everyone has the right to get one free credit report each and every year.

DEAR BENNY: My sister and I recently became eligible for distribution of assets as part of the inheritance of my mom's estate; however, she is disabled and has an adult disabled son so both of them are currently on government assistance for certain things, including their ongoing health care needs.

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