Key Takeaways
- If the offer will not cover the payoff plus closing costs, a normal sale cannot close. No buyer can change that arithmetic.
- A short sale needs your lender\u2019s written approval to accept less than the balance. It takes longer and it is the lender\u2019s decision, not yours.
- Bringing the shortfall in cash at closing is the fastest route if you can do it.
- A HUD-approved housing counselor is free and has no interest in buying your house. Call one before you call a buyer.
The Arithmetic, First
A sale has to produce enough money to pay off what is secured against the house plus the costs of transferring it. If the price does not reach that figure, the sale cannot close. No buyer can change this, including us, and any buyer who implies otherwise is either confused or misleading you.
So the first job is knowing the real numbers, and most people are working from the wrong ones.
- Your payoff is not your principal balance. Ask your servicer for a written payoff quote good through a specific date. It includes interest to that date, fees, and any advances the servicer has made for taxes or insurance.
- Add every other lien. A second mortgage or HELOC, property tax arrears, an HOA lien, a judgment, a contractor's lien. All of them have to clear.
- Subtract the costs of selling. On a retail sale that means commission and your share of closing costs; on a sale to us there is no commission and we pay the standard closing costs.
Do that sum before you talk to anybody. If the answer is comfortably positive you are not underwater and this article is not about you. If it is negative, keep reading.
Your Actual Options
| Option | What it requires | Main drawback |
|---|---|---|
| Bring the shortfall to closing | Cash you can access | You fund the gap yourself, but it is the fastest and cleanest exit |
| Stay and keep paying | Affordable payments and a reason to stay | Time is the only cure; values may or may not recover |
| Loss mitigation with the servicer | A complete application; the servicer must evaluate it | Free to ask and often overlooked. Should be your first call |
| Short sale | Your lender's written approval to accept less than the balance | Slow, and entirely the lender's decision, not yours |
| Deed in lieu of foreclosure | The lender agreeing to take the property back | You get no proceeds, and the lender may refuse |
| Let it go to foreclosure | Nothing | Years of credit damage and no control over timing |
Call a HUD-approved housing counselor before you call any buyer. The service is free, they are not trying to purchase your house, and they will explain options no buyer has an incentive to mention. The link is in the sources at the end. We would rather you did that first and came back to us than the other way round.
What A Short Sale Actually Involves
A short sale is a sale for less than the secured balance, with the lender's written agreement to release its lien anyway. Three things sellers routinely misunderstand.
It is the lender's decision, not yours. You can find a willing buyer at a fair price and still be refused. The lender is weighing your offer against what it thinks it would recover at foreclosure.
It is slower, not faster. The approval process adds weeks or months, which matters enormously if a foreclosure sale date is already posted. See the Texas foreclosure timeline for how much room you actually have.
Approval to sell short is not automatically forgiveness of the rest. Whether the lender may pursue the remaining balance depends on the loan, the agreement, and law. That is a question for an attorney about your documents, and it is worth asking before you sign a short sale approval, not after.
The Consequences Nobody Should Guess At
Two things get thrown around confidently online and both deserve a professional rather than an article.
Credit. A short sale or a deed in lieu is generally reported as a negative event, and both are usually treated differently from a completed foreclosure. How much it affects your score depends on the rest of your file, and anybody quoting you a specific number of points is inventing it.
Tax. Forgiven debt can be treated as income in some circumstances, and there are exclusions and exceptions that may apply. This genuinely turns on your facts. Ask a CPA before you assume either way.
Where We Fit, And Where We Do Not
We buy with our own funds, which makes us fast. It does not make us able to pay more than a house is worth, and it does not give us any power over your lender.
So the honest answer is that in a genuinely underwater situation, a straight sale to us often cannot work. If the offer will not clear the payoff and the liens, there is no transaction. When that is the case we will tell you on the first call rather than tie up the weeks you have left, because the worst thing we could do to somebody in this position is waste their remaining time.
Where we can help: when the gap is small enough that you can close it, when a lender approves a short sale and wants a buyer who will certainly complete, or when the house needs work that is suppressing every other offer. See house needs repairs for that last case.
The Offers To Walk Away From
Distress attracts predators, and negative equity plus a deadline is the most targeted situation in residential property. These are the pitches worth recognizing, and none of them is hypothetical.
"Sign the deed over to us and we will take over your payments." The loan stays in your name. If they stop paying, the foreclosure and the credit damage are yours, and you no longer own the house you are still liable for. Almost every mortgage also contains a due-on-sale clause, so transferring the deed can accelerate the whole balance immediately.
"Deed it to us, rent it back, buy it later." Sale-leaseback arrangements aimed at homeowners in default have a long history of ending with the former owner evicted and the equity gone. If somebody proposes this, that is the moment to call an attorney, not to sign.
"Pay us a fee and we will negotiate with your lender." A HUD-approved housing counselor does this for free. Advance-fee loan modification pitches are heavily regulated for good reason.
"Stop talking to your lender, talk only to us." No legitimate buyer or adviser needs you to stop communicating with your servicer. That instruction exists to keep you from learning about options.
The common thread is urgency plus a request to sign something you have not had time to read. Any offer that survives a day's reflection and an attorney's glance is probably fine; any offer that cannot survive either is telling you what it is. That applies to us as much as anyone, and how to read a cash offer sets out the specific clauses to check.
Three Things To Do This Week
- Get the written payoff from your servicer and the balance of every other lien. Real figures, not estimates.
- Call a HUD-approved housing counselor. Free, no obligation, no interest in your house.
- Contact your servicer's loss mitigation department and ask what you qualify for. Federal rules require them to evaluate a complete application, and this route is the one most people skip because they assume the answer is no.
Do those three before you sign anything with any buyer. If after them a sale is the right route, how to read a cash offer will help you judge whichever offers arrive, including ours.
This is general information, not legal, tax or financial advice. Texas procedure turns on the specific documents in your file and the dates on them. For anything involving a court, an estate, a lender or a taxing authority, talk to a Texas attorney or a HUD-approved housing counselor as well as to us.
Sources
- Consumer Financial Protection Bureau, options for struggling homeowners — short sale and deed in lieu explained
- HUD-approved housing counseling agencies — free counseling, no obligation
- 12 CFR 1024.41, Regulation X loss mitigation — what a servicer must evaluate