What is an Overleveraged Property?
To understand what an overleveraged property is, you first need to understand what leverage is in real estate. Leverage is generated by using borrowed capital as your funding source when you invest. This allows you to buy a much larger asset than you could if you had to pay 100% of the purchase price upfront.
For instance, if you pay full cash for a property, you have zero leverage, and the property is yours. If you put down half on a property, then you have 50 percent leverage. You can also put down money on multiple properties, leveraging your down payment on each. You essentially put a down payment on a mortgage to give you some leverage when negotiating the mortgage terms.
What is an Overleveraged Property?
An overleveraged house is one in which the loan balance exceeds the home’s value. This is also known as an upside-down mortgage. In most cases, an overleveraged house is not the homeowner’s fault. The real estate market may experience a downturn, and property values may plummet.
However, even in a bad real estate market, your bank still expects you to pay your mortgage. It doesn’t matter if the house is worth less than the loan balance. For this reason, many homeowners walk away from the mortgage and file bankruptcy or allow the house to go into foreclosure. There are other options for dealing with an overleveraged property.
What Are My Options When My House is Overleveraged?
When your mortgage is upside-down, you have several options:
Stay in the House
Continue paying until the value increases and gives you enough equity to sell without being forced to write a big check to pay the difference. Your credit will remain intact, and as the years go by, your debt is decreased. However, many people simply can’t remain in the home for various reasons and must have another solution.
Deed in Lieu
You may ask the bank to take back the house to avoid foreclosure. If they do, they cannot pursue you for a deficiency judgment. Make sure you get an attorney involved in this choice and let him/her approach the bank. You are relieved of the home and the debt without foreclosure. However, your credit score will be reduced. Some banks will not accept a deed instead of foreclosure.
You can ask for principal reduction and rate and payment decrease. Your terms would be changed so you could more easily afford the payments. The lender may agree to a principal reduction so you could sell the home without covering a loss. However, you may not be able to remain in the home after a modification.
If you or a Realtor can find a buyer for the home at a reduced price, you may petition the bank for a short sale. The loan is paid off, and the house is sold. The downside is that it’s a time-consuming process for both the agent and you. There must be a cash buyer under contract before most banks even consider a short sale. If the house is not listed, the bank will likely require you to do so before even considering your request.
Let the Bank Foreclose: If all else fails, this is an option, and many are taking. The loan and the home will go away, and you can start over. However, your credit will be lost, and the foreclosure will remain for seven years. The bank may pursue a deficiency for the remainder of the balance after selling the house at auction. You could also face a tax burden if your debt is larger than your purchase price of the home.
Bankruptcy will stop foreclosure. However, it is not your best option if your real estate loan is the biggest reason for filing. Your obligation to pay your debt is gone, and you buy more time to stay in the home before the bank completes the foreclosure process. However, bankruptcy remains on your credit for ten years and is an ugly, unpleasant process. Your credit will be lost.
Sell Your House As-Is for Cash
Perhaps the best option is to sell your house for cash to a local home buyer in Cleveland, OH. A buy can look at the house, make a cash offer, and close the sale in as little as seven days. You may not get what you want for the house. However, you can pay off the loan, avoid needless selling costs, and walk away with no attachments.
How to Sell an Overleveraged House in 3 Easy Steps
Step 1: Call Our Local House Buyers
Call us today and schedule a quick walkthrough with one of our house buyers. We can assess your property to decide if we would like to move forward with a purchase. If so, we will make an offer within 24 to 48 hours. Do not worry about preparing or cleaning your property. We buy houses as-is.
Step 2: We Will Make a Fair Cash Offer
If we like what we see, we will make a cash offer on your house below its current market value. We will not try to buy your house at a rock-bottom price. Instead, our local house buyers try to create a solution where everyone benefits. As local buyers, we understand the real value of your property in Ohio.
Step 3: We Pay You Cash
If you accept our offer, then you can schedule a close date that is convenient for you. In most cases, we can close in as little as seven days and have cash in your hand in only a few weeks. We pay all closing costs. You pay nothing. Simply walk away from your property with no strings attached.
Sell My House for Cash: Why It’s the Best Option
If you attempt to sell your house before foreclosure, you need to be aware of your options. Listing your house on the market and hiring a real estate agent is not likely to help you avoid foreclosure. It can take several months to get the house ready to sell, find a buyer, and close. A For Sale by Owner (FSBO) can take twice as long.
If you want to avoid foreclosure, the best solution is to sell your house fast for cash. When you work with one of our local house buyers, you can avoid the hassle of putting your house on the market, preparing it to sell, and showing it multiple times. Our buyers can close on a deal in as little as seven days, allowing you to get from underneath the mortgage much faster.
Sell My Overleveraged House in Cleveland, Ohio
Before you contact the realtor or list your house on the market, do not pass up the chance to sell your house as-is for cash. Home Buyers Ohio is here to help you find the simplest solutions to get cash-in-hand quickly without wasting time and money on repairs and closing costs. To schedule a quick, no-obligation walkthrough with one of our local house buyers, call 440-490-4600.