You’ve no doubt seen those signs around, and if you are in trouble financially (your mortgage is too much for you, your house is underwater), this idea might sound attractive–you get rid of a home you can’t pay for and don’t lose your credit. However, it might not work that way at all.
When the buyer shows up, he will want you to sign over the house to him; knowing that you are desperate, he’ll present you with some documents. In most cases, he won’t be a real estate licensee, so he’s not required by law to tell you the things an agent would have to.
These documents will essentially give him control over your house, and take you out of the picture. He’ll take over the payments from you. Just what you want, right? Yes, except for the fact that you’ll still be responsible for the loan (WHAT?? You’re kidding, right?–no, I’m not). The way this works is that you deliver title to the buyer, no escrow, no agents, no commissions–but he will re-sell this property at a profit to someone who cannot qualify to buy a home on his own, and who may not have the best credit, income, or intention to pay. This recently happened to an acquaintance of mine, and he is now in a great deal of difficulty–the lender is not receiving his payments from the buyer, the buyer in all likelihood sold the property again to a third party who is also not making payments, you can’t get possession of the property, and you literally have NO recourse. Of course, there’s the little matter of going to the District Attorney (IF a crime has been committed, and often it has not), but how does that help YOU? You will still suffer the loss of your credit, it will seem as if you just walked away from the house, and your interest in the property will eventually be foreclosed out when the lender takes back the house for nonpayment of his loan.
So am I telling you, “don’t do this?” Not really. There are times when a strategy like this can help you immensely, and in fact my parents used this method to purchase some properties they still own–but they were reputable people, and made the payments. This is a place where you need advice from a competent real estate broker.
There are alternatives to this process–the first one is a short sale, in which the lender actually takes less than the money due on the loan, and lets you sell the property at a loss to him. This is a much preferred alternative to “walking away.” The second is a loan modification, but “good luck with that;” the lenders are NOT providing modifications that help the borrower. For the most part, the loans are being re-cast so that the borrower is still obligated for the full amount of the note, and so that he only has temporary relief from the burden of his mortgage. In fact, in many cases, note modifications leave the borrower in worse shape than he was originally, and he eventually loses the house.
Need help?? contact a reputable real estate professional, who will give you sound counsel.