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Can I Sell My House with My Mortgage in Arrears?

In the realm of real estate, unforeseen circumstances can sometimes lead homeowners down a challenging path, one marked by financial turbulence. If you find yourself in a situation where mortgage arrears are casting a shadow over your homeownership journey, you may wonder if selling your house is even a viable option. The good news is that selling a house with mortgage arrears is indeed possible, although it requires careful consideration and strategic planning.

First and foremost, it’s essential to understand the nature of mortgage arrears. When you fall behind on your mortgage payments, the arrears accumulate, and it becomes imperative to address the issue promptly. One option is to negotiate with your lender to establish a repayment plan or explore loan modification programs that could make the mortgage more manageable. However, if these avenues prove insufficient or if your financial situation doesn’t improve, selling your house might be the next logical step.

Selling a house with mortgage arrears introduces a set of challenges, but it’s crucial to approach the process with transparency. Potential buyers will likely discover the outstanding arrears during the due diligence phase, so it’s in your best interest to disclose this information upfront. Honesty can build trust with potential buyers and may even open the door for negotiations on the purchase price or terms.

Your lender should provide you with two figures. The first is the balance to bring the mortgage current. This is the total amount that will bring the loan current. It is called the reinstatement amount. The second figure is the total payoff, which pays off the loan and as well as the arrears. You’ll need the total payoff if you are trying to sell your house with a mortgage in arrears.

If there has been one or multiple loan modifications done to your mortgage, it can make the payoff tricky. A lot of the time there is interest that gets capitalized and added to the end of your loan. That’s a fancy way of saying that whatever amount you were behind when you did a loan modification, gets added to the end of the mortgage.

In some cases, selling the house might not generate enough funds to cover the outstanding mortgage and additional fees. This is where communication with your lender becomes pivotal. Engaging in an open dialogue with your lender about your intention to sell can lead to discussions about potential solutions. Some lenders may be willing to work with you to find a resolution that minimizes financial loss for both parties.

If there aren’t enough funds when you sell your house to cover the mortgage, you should ask your lender about the possibility of a short sale. A short sale is when the lender takes less than what is owed on the mortgage. This was commonplace after the 2008 financial crisis. If your lender does accept a short sale, keep in mind you will receive a 1099-C for the difference. You do have to pay taxes on the difference of what was owed and what was paid off. The IRS views the cancellation of debt as income. The IRS gives you several years to pay the taxes but there are several ways to avoid paying taxes on the short sale 1099 if you qualify.

Can I Sell My House with My Mortgage in Arrears?

Navigating the sale of a house with mortgage arrears may also involve seeking professional assistance. Real estate agents experienced in distressed properties can provide valuable guidance, helping you market the property effectively despite its financial challenges. Additionally, consulting with a financial advisor or legal professional can offer insights into your specific situation and potential implications.

In conclusion, selling a house with mortgage arrears is a feasible option, but it requires careful planning, transparency, and effective communication with all involved parties. While the process may present challenges, addressing the issue head-on and seeking professional advice can pave the way for a smoother transaction. Remember that open communication with your lender, potential buyers, and real estate professionals is key to finding a viable solution that benefits everyone involved.


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