Can I Sell My House After a Loan Modification?
Yes, in many cases you can sell your house after a loan modification.
A loan modification changes the terms of your mortgage. It does not generally mean that you are required to keep the property forever or that you cannot sell it later.
But before putting the house on the market, there is an important question to answer:
If you sell the house, how much will actually need to be paid to your mortgage lender and any other lienholders at closing?
That number may not be as simple as looking at the principal balance on your latest mortgage statement.
If you've had a loan modification, especially one involving deferred amounts or other forms of mortgage assistance, understanding the payoff is an important first step.
Why Would Someone Sell After a Loan Modification?
A loan modification may have made perfect sense when you received it.
Your circumstances can change.
Perhaps the modified payment has become difficult to afford. Your income may have decreased. Insurance, taxes and everyday living expenses may have increased. You may need to relocate. Or you may simply have decided that keeping the property no longer makes financial sense.
Some homeowners also discover that a modification solved the immediate problem without necessarily solving the long-term one.
There is nothing unusual about reconsidering your options later.
The question isn't whether the loan modification "worked" or "failed."
The question is:
What makes sense for you now?
Does a Loan Modification Prevent Me From Selling?
Generally, a loan modification itself does not prevent a future sale.
When you sell a property with a mortgage, the amounts secured by the property generally need to be addressed through the closing process.
That's why your current payoff information matters.
A modified loan can be more complicated than simply taking the balance shown on a monthly statement and subtracting it from the expected sales price.
Depending on your circumstances, there may be deferred principal, subordinate liens or other amounts associated with previous mortgage assistance.
Your particular documents determine what applies to you.
Don't Confuse Your Mortgage Balance With Your Payoff Amount
This is one of the first things I would want a homeowner to understand.
Suppose your mortgage statement shows a principal balance of $500,000.
That doesn't necessarily mean exactly $500,000 is all that will be required to satisfy the loan when the property is sold.
A payoff statement can include amounts that aren't obvious from the number you see when you log into your mortgage account.
Before making a decision based on how much equity you believe you have, obtain accurate payoff information.
Otherwise, you could think you have more—or less—equity than you actually do.
What About Deferred Principal From My Loan Modification?
Some loan modifications may involve a portion of the amount owed being deferred rather than eliminated.
That distinction becomes particularly important when you sell.
A deferred amount may not be part of your regular monthly payment, but that doesn't necessarily mean it disappeared.
Depending on the terms of your modification, it may become due when the property is sold, the loan is refinanced or the mortgage reaches another specified event.
Review your modification documents and obtain current payoff information rather than assuming a deferred balance won't affect your sale.
What If I Received Other Mortgage Assistance?
This is another reason to look beyond the first mortgage statement.
Some homeowners have received assistance through programs or arrangements that may have created an additional obligation associated with the property.
There could potentially be another lien or balance that must be dealt with when the property is sold.
If you're unsure what was recorded against your property or what assistance you received, don't guess.
Find out before calculating your expected proceeds.
What If My House Is Worth More Than I Owe?
If the property can sell for enough to satisfy the mortgage payoff, other liens and the expenses associated with the sale, you may be able to complete a traditional sale.
The remaining proceeds, if any, would generally represent your equity after the obligations and transaction expenses are paid.
But there are four numbers we want to understand:
Realistic sale price
What is the home actually likely to sell for in the current market?
Mortgage payoff
What amount will be required to pay off the modified mortgage?
Other liens or obligations
Is anything else secured by the property?
Selling expenses
What costs will be associated with completing the transaction?
Those numbers give us a much better picture than an automated online home value and the balance on a mortgage statement.
What If I Owe More Than the House Is Worth?
This is where the situation becomes more interesting.
You may want—or need—to sell, but discover that the expected sale proceeds won't be enough to satisfy the mortgage and other required expenses.
That doesn't necessarily mean you can't sell the property.
A short sale may be an option.
With a short sale, the mortgage lender or servicer is asked to approve a transaction even though the sale proceeds will not be sufficient to satisfy the mortgage under its normal terms.
Lender approval is required, and the circumstances of each homeowner and loan are different.
But if your modified mortgage is no longer affordable and there isn't enough equity for a conventional sale, it's worth determining whether a short sale is an available alternative rather than simply assuming foreclosure is inevitable.
Do I Have to Be Behind on My Mortgage Before I Sell?
No. You don't have to wait until you've missed mortgage payments simply to sell a house.
If you have enough equity for a traditional sale, being current on the mortgage doesn't prevent you from selling.
If you believe a short sale may be necessary, eligibility and lender requirements are a separate issue and should be evaluated based on your particular circumstances and loan.
The important point is that you don't need to intentionally create a mortgage crisis just because you're considering selling.
If you already know the payment is becoming unsustainable, gathering information early gives you more time to make a plan.
Should I Sell Now or Try Another Loan Modification?
That depends on why you're struggling and what you want to accomplish.
Another mortgage workout may be worth exploring if the financial problem is temporary and keeping the home remains both important and realistically affordable.
Selling may deserve serious consideration when the underlying problem is more permanent.
For example, you may want to evaluate selling if:
- your income has permanently decreased,
- the modified payment is still unaffordable,
- housing expenses are consuming too much of your income,
- you're repeatedly using savings or credit to make payments,
- you need to relocate anyway, or
- keeping the property no longer fits your long-term plans.
A lower mortgage payment isn't necessarily a solution if the entire cost of owning the home remains unaffordable.
What If I Recently Completed the Loan Modification?
Don't assume there is a universal waiting period before you can sell.
Your modification agreement and any related assistance documents are the places to look for restrictions or obligations specific to your situation.
If you recently modified the loan and now want to sell, review those documents carefully and request current payoff information.
The goal is to know exactly what you're dealing with before accepting an offer.
Find Out What the House Is Worth Before Making the Decision
If you're thinking about selling after a loan modification, you don't need to begin by deciding whether you're having a traditional sale or a short sale.
Begin with the numbers.
Find out what your home is realistically worth in today's market.
Then compare the probable selling price with the mortgage payoff, other liens and anticipated selling expenses.
You may discover that you have enough equity to sell normally.
You may discover that the numbers are close.
Or you may discover that there is a shortage and a short sale needs to be explored.
Any of those answers is more useful than wondering.
A Loan Modification Doesn't Have to Be the End of the Story
You made the best decision you could when you modified your mortgage based on the circumstances you had at the time.
Your circumstances today may be different.
If keeping the property still makes financial sense, that's worth exploring.
If selling now makes more sense, the previous modification doesn't automatically take that choice away from you.
At Midas Realty Group, we work with Southern California homeowners dealing with complicated mortgage situations, including homeowners who previously received loan modifications.
If you're considering selling, we can help you determine the property's realistic market value and look at the real estate side of the numbers. If there appears to be sufficient equity, we can discuss a traditional sale. If the numbers indicate a shortage, we can look at whether a short sale should be explored.
The first step isn't deciding to sell. It's finding out what your choices actually are.
This information is for general educational purposes and is not legal, tax or financial advice. Foreclosure and loss-mitigation situations can involve important deadlines and individual circumstances. Consider consulting an appropriate attorney, HUD-approved housing counselor, tax professional or other qualified adviser when needed.
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