To Short Sale or not to Short Sale. That is the question.

Real Estate Agent with Keller Williams Realty

When you bought your home, you signed a lot of documents that day. But one of those documents is the Promissory Note (3 page document) which is your personal liability and the Deed of Trust (18 page doc) which is personal liability secured by your house.  This is where the bank really digs their teeth into your property.  Virginia is a Deed of Trust state in that a trustee is assigned to you. In event of default, the trustee is activated. And if bank wants to foreclose, the bank transfers power to their attorney (for example Sam White, a Virginia foreclosure attorney) 

What if you are thinking about doing a Short Sale and you have 401K filled up with cash? What if you have a hefty savings account?  The bank is going to look at the whole picture; they are very fact driven.  Can the Lender seek a deficiency judgment against the Seller? Well, it depends on whether the loan is recourse or non-recourse loan. Virginia is a very conservative state. There are deficiency judgments in VA and they MAY come after you.

The closing documents that you signed are contractual. And if you miss ONE payment you are in breach of contract.  They will send you a "Notice of Default" letter wanting you to "cure" it by XYZ date. They want the FULL amount and will reject partial payments; a partial payment is still breach of contract. The bank is not here to negotiate with Owners. After 3 missed payments, they typically begin foreclosure proceedings.  That is when you receive a "Notice of Foreclosure" letter.  At this point, the bank has paid attorney's fees and you know they are serious. The bank is required to put an ad for the foreclosure in the newspaper three times.

BOA is a big bank, merged with Countrywide.  They have sooo much toxic assets that they don't have the staff to keep up with it all. So Owners can go months not paying their mortgage and NOT be foreclosed upon.  But that is a risk you take. You never know when they will start the foreclosure process. If you go the short sale route and get an offer to buy, the banks will not necessarily halt the foreclosure process. It is true that the Short Sale arm of the bank does not ususally communicate with the Foreclosure arm. You can be in the middle of a Short Sale and be Foreclosed.

Sellers should always try to work it out. Always try a loan modification or any other avenue deemed appropriate; the options are repayment plan, workout agreement, loan mod, deed in lieu of foreclosure and short sale.   Deed in lieu of foreclosure are for the true victims of life and the banks don't want to own any more property in this downturned market. Deed in lieu of foreclosure is rare. My title attorney only did 3 in the past 10 years.  

To be blunt, why are the banks jacked up?  Are they not concerned about their bottom line? It seems like they make weird, thoughtless decisions. Banks accept a Short Sale for one house and reject the next at random, it seems.  Well, banks don't make sense.  They are an institution and the negotiators have guidelines they must follow and they only want a certain amount of losses on their balance sheets.  To confuse things even more, each bank is unique in the way it deals with short sales. There is different paperwork, different requirements and different timelines.

So where does that leave the honest, hard working, god-fearing citizens of Virginia stuck in a tight situation? To be sure, always keep paying your mortgage if possible.  I can never recommend anyone to stop paying. My general advise is this, subject to the nuances of an individuals situation: if you have a bonifide hardship and want to stay in your home, try a loan mod.  If you have a bonifide hardship and want to move, try a short sale.  If either are with BOA, it will take a while.

Betty Westerlund

Comments (1)

Ed DeChristopher
Fredericksburg Realty, Inc. - Fredericksburg, VA
CRS Fredericksburg VA

Looking at the contractual agreement as a promise to pay is somewhat akin to the marital contractual agreement many of us signed.  Seems that both mean little to some people.  As a matter of fact, too frequently (as far as I am concerned) our colleagues do not honor their promises.  I am appalled when I read of people trying to get a short sale after they speculated a huge gain by buying when they did and now having to accept the property they purchased is not worth as much on the open market as they had speculated.  It is not although this is something new either.  Look at history and learn from it.  The key is knowing when to sell!  Just like the stock market.

Mar 01, 2010 08:41 PM