Why one cash offer fails
A cash buyer has to pay for repairs, carry the house while the work gets done, pay to sell it again, and still make it worth the risk. So a cash offer comes in well under what the house would sell for once it's fixed.
When you have plenty of equity, that gap doesn't matter much. When you don't, the offer can land below what you owe. Then the sale can't close unless your servicer agrees to a short sale, selling for less than you owe, and you'd have to find the buyer and get that approval.
A worked example
Example only. These are round numbers to show the idea, not a quote, an estimate of your house, or figures from any source.
- What the house could sell for, fixed up
- $300,000
- What it would take to pay off the loan, including missed payments
- $270,000
- A cash offer that leaves room for repairs, holding and resale costs
- $200,000
The cash offer is $70,000 short of the payoff. That deal can't close without the lender taking a loss.
What can still work
Taking over your payments
In the example, I pay what's needed to bring the loan current and take over the monthly payments. No sale price has to cover the $270,000 today, so the gap doesn't stop the deal. The catch: the loan stays in your name until it's paid off or refinanced. If the mortgage has a due-on-sale clause, the lender can call the whole loan due when the house is transferred without its written consent. Read every risk.
A lease option
The buyer leases the house and gets the right to buy it later at a set price. The rent helps cover your payment, and the sale happens down the road. You stay the owner, and on the loan, until then.
A novation
The house is fixed up and sold on the open market. In the example, say the work costs $15,000 and selling costs come to $21,000. A $300,000 sale leaves $264,000, which is close to the $270,000 payoff but still short. A novation needs a little more room than this example has, so it's a fit when there's some equity, just not enough for cash.
Seller financing
This one usually doesn't help when there's little equity. It works best when you own the house outright or owe very little.
A short sale
If none of these fit, a short sale sells the home for less than you owe, with your servicer's approval. In some states, the lender could sue you afterward for the rest.