Payor with FICO score above 650, three payments made and the purchaser made a 15% down payment.
The appraisal came in for less than the loan balance! There are multiple repossessions in the neighborhood.
The is a perfect example of the ugly real estate market we have right now. Everyone is going to loose in this situation so it is no wonder the note buyer has no interest in buying the note.
Implications?
The buyer has just thrown away their down payment money. Consensus says it won’t come back for a long time, if ever. Many people in this situation have found they can buy one of the repo houses in the same neighborhood for less money and/or smaller payments. They may continue to make payments if they can and if the house isn’t to far under water. However, the payment stream has to be considered VERY uncertain.
The note holder should consider themselves fortunate if the buyers continue to make payments and maintain the property. Since there were no loans on the property they can probably use the note as security for a loan equal to some percentage of the new, lower, appraised value of the house. They would be liable for that loan if the buyer walks, but it would at least give them some money immediately.
The bottom feeding vultures are always around so if the note holder gets to a point where they MUST sell the note (or the house if they get it back) they may very well end up getting half price or less.
Most people don’t realize that losses on the sale of a personal residence are NOT tax deductable! This is no doubt a big surprise for many. I don’t know if in this case the loss would be deductable or not. In any case, deductions only help if you have income to offset.
