What happens when you sell less than your mortgage?

As the title states, I'm going to be cutting my losses with a property riddled with a maintenance issues.

The only issue is, the mortgage is a little higher than the sale price. It means I will end up owing around 10k. Do I need to pay down the difference prior to settlement? What does bank do if there is an outstanding amount?

 

Sorry to hear this

I know an investor who successfully negotiated a deal with the bank to reduce debt as value of IP much lower than debt

Not sure how you progress this, not many realise you can do this, why would they?

 

The bank will not release the mortgage unless it is fully paid out. I have known of cases where the bank will give you a personal loan for the shortfall if you cannot get the money from another source.

If you do have the money, you will pay it to your solicitors trust account before settlement.

You can certainly ask the bank to forgive that portion of the loan, but I don't like your chances. Usually loans are partially forgiven if the alternative is bankruptcy and the bank figures some money is better than none. For $10K that would not be an option.

Talk to your bank. They will tell you what they are prepared to do.
Marg

 

Thanks everyone. We have the money to pay down the difference so unfortunately we will have to bite the bullet and do this.

 

Just curious if you care to share, where is the property?

 

Sure, I have written a previous about this too..It's in woodridge in brisbane. An old house that's a money pit with maintenance. Issues galore. Cutting our loses as it's creating stress for us. The shortfall is as a result of having drawn doen equity previously to buy our PPOR.

 

You are very wise to cut your loses, lesson learnt

MTR

 

Seek tax advice on this. There may be some ways to keep claiming the interest on the shortfall.

 

Can u tell us exactly what happened? What went wrong?

 

Is the 10k not sufficient to bring the house up to scratch?

 

Then where's the "loss"? If you used equity in the IP for your PPOR then its not a loss.... its sitting in your PPOR.....

I'm now curious how you did that. If it was from the investment loan I hope you've been tracking the mixed use.

 

I am always happy to hear stories of people cutting their losses for the sake of mental and physical health. I mean don't get me wrong, it's not good to hear how this property burnt you but well done on seeing the bigger picture.

Farrrrrrrrrrr to many people put a cost on everything in life. This includes for the most part their health and well being. Never forget the richest people in the world when lying on their death bed if given 1% chance to give it all for their health back would ALL choose health.

Holding a lemon property which is causing you endless stress because you don't want to take a loss is a horrible idea! Sell, learn from your mistakes, bank the loss, thank your in the lucky country, do it better the next time and when you clean up just claim back your loss on your big gain.

 

This isi true and is a common mistake - people often say if I borrow against a property it will become even more negative gered - and this is not the case if the funds are used for another property

 

good advice

 

Absolutely agree with you, when it is pretty small shortfall then its relatively easy to make that decision