My daughter owns a condo that she bought a few years ago and currently rents out. She originally lived in it, but went back to school and is now working at a much lower salary. The condo is not always rented and even when it is, it doesn't bring in enough to cover the mortgage payment and condo association fee. She's approached the mortgage company about a short sale or deed in lieu of foreclosure, but has been told she qualifies for neither because the property is not owner-occupied. Also, she doesn't make enough money to qualify for a refinance. She doesn't want to go into foreclosure but doesn't know what else to do. Can you help?
You don't mention why your daughter is convinced the sale would have to be a "short sale"; that is, one in which the sale proceeds won't cover the amount she owes on the mortgage. Her first step might be to look at selling the property and paying off the loan. She can check out prices of comparable properties -- ones of the same size and quality in the same neighborhood sold during the last six months or so -- on websites such as www.zillow.com.
If your daughter will sell at a loss, she has another option: She can simply execute a deed giving the property back to the mortgage company. She need not actually qualify for a deed in lieu of foreclosure. When she approached the company, she was likely told that she didn't qualify because the mortgage company doesn't want the property back. But it cannot stop her from executing a deed in the company's favor, which should at least help her avoid the actual process of foreclosure.
However, this won't necessarily stop the mortgage company from coming after her for the difference between what she owes and what it can sell the property for, called the deficiency. Even if it doesn't squeeze her for the extra cash, the mortgage company may write off all or part of the deficiency, which means it will be treated as "income" to your daughter by the IRS, and she'll have to pay taxes on it. She can avoid this, however, if she can show that at the time of the write off, her debts exceeded the value of her assets. She may want to seek the help of a tax professional to decide the most advantageous way to handle the situation.
If your daughter wants to try to negotiate with the mortgage company -- either on the mortgage now or on the deficiency balance later -- she should contact a HUD-approved housing counselor for some free advice. Counselors can be found on HUD.gov (click "Talk to a Housing Counselor") or by contacting the Homeownership Preservation Foundation by visiting www.995hope.org or calling 888-995-HOPE (888-995-4673).