The press loves writing about two things. One, the slowdown in the real estate market (including stories about rising inventories … but, oddly, not so much about how prices have remained steady). Two, the fact that some sellers may end up having to swallow a loss on their home sales.
It’s called negative equity. You know, a situation where, say, you owe $400,000 on your condo, but someone’s only willing to buy it for $380,000 … or less.
In my opinion (educated), there isn’t much chance this sort of thing will become widespread, all things staying constant (is that a self-fulfilling prophecy, or what?). The only people who are facing negative equity are those who bought in the past year or two, and have to sell, for some external reason, such as loss of job or illness. There’s nothing unique about that – people have had to face these types of situations for the last 100 years.
I expect home prices to appreciate at the rate of inflation, over the coming years. Therefore, people should be able to pay off their mortgages (at least), plus pay real estate commissions, with no problem (even if they’ve taken out 100% loans).
What to do if you do have to sell, and take a loss?
I don’t know. I’d start by drinking heavily to forget your problems.
There aren’t many good options, as you’ll see, if you read this story. And, in case you were wondering:
When you sell your house, you must pay off all liens on the house — all mortgages including HELOCs, and any tax or mechanic’s liens. If you don’t retire all existing liens, you can’t convey good title to a buyer, which means you can’t sell.
You cannot escape this trap by transferring an existing lien to another property. Hardly a week goes by that some homeowner with negative equity does not ask me whether, in selling his/her house, the second mortgage can be transferred to the new house he/she plans to purchase. The answer is “no”; liens are not transferable. Liens apply to a particular property and can’t be transferred to another property without the permission of the lender, which you won’t get.
More: The curse of negative equity: Is there an escape? – By Jack Guttentag, Inman News, by way of The Boston Globe