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Equity is the value of an assets minus any liens against that asset. In other words, what value would you retain if you sold the asset in todays market.
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In order to determine the equity in your home, you must first determine
its fair market value. The fair market value is simply the price you could sell your home in a reasonable period of
time in todays market. Owners often make the mistake of using the price they paid for their home as the market value.
The reality is that values rarely stay static over time. Some people believe that real estate values only go up
but our present real estate market clearly demonstrates that real estate values can go down. In any case, you cannot
assume that the value you paid for your property has any relationship with what the property is worth today and to determine
the equity in your property you have to us todays value. |
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When the collateral used to secure a loan does not have enough value to pay off the loan, the remaining
amount paid is referred to as the deficiency. If a mortgage is Foreclosed by Action, the lender can foreclose on the property and obtain a judgment for the deficiency. This is commonly referred to as
a deficiency judgment. . |
Selling Property With Negaitive Equity
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Property can be sold with negative equity but
only if the lenders who have liens on the property can agree to the sale. This is commonly called a Short Sale. The chart on the right shows how todays property value determines whether you have equity or if you need a Short Sale
in order to sell your property. The right column shows a situation where the property cannot be sold for enough to pay
all of the liens in full. While there would be enough money to pay-off the First Mortgage there is not enough to pay-off either
the second or third mortgage. In order to sell this property the lenders would all have to agree to a short sale. |
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Property originally was purchased for $730,000.00
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EQUITY
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Negative Equity
-$200,000.00 |
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Negative Equity
-$210,000.00 |
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TODAYS VALUE
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JUDGMENT
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THIRD MORTGAGE
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SECOND MORTGAGE
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FIRST MORTGAGE
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Result Upon Sale
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A sale of the property will generate $630,000.00. There are mortgages in the amount of $530,000.00
against the property that will have to be paid leaving $100,000.00 of equity for the sellers. |
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A sale of the property will generate $530,000.00. There are mortgages in the amount of $530,000.00
which have to be paid which will result in no equity to the seller. |
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A sale of the property will generate $330,000.00. The mortgage total $530,000.00 which means
there is not equity in the property. In order to sell the property, the owner who have to get his/hers lenders to agree
to a short sale. |
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A sale of the property will generate $330,000.00. The mortgage total $530,000.00 which means
there is not equity in the property. In order to sell the property, the owner who have to get his/hers lenders to agree
to a short sale. |
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