CAR Short Listing Addendum form (CAR Form SSL, 8/07) clearly states:
"A Short Sale may have negative impact on Seller's credit rating even if foreclosure process has not officially begun or once begun, is not completed".
What is your experience with the Short Sale? Was your clients FICO score impacted? Always? Some times? Do you know how this might change once the new algorithm is in place in September? Please share your experience and thoughts.
Cimpler Real Estate,
Thanks for the quick response.
I was able to talk to the short sale department at the mortgage company and they asked me to call them with my Realtors name once my house is on the market and they would start the short sale process. This seemed a bit strange but I guess I will run with it and see what happens. Hopefully, my relocation company will not have an issue with this. My next issue will be trying to buy a house with a short sale over my head in my new location. If we can somehow come up with some money down will banks be more willing to give you a loan after a short sale? Should I try and buy another house in the new location before the short sale closes? What are my options? Wait a year to buy again?
You welcome.
Whatever your decision going to be, short sale usually does not start unless client missed a few payments. This means that your credit might be effected. It means, even if you try to rent, not to buy, make sure that you can secure a rental agreement, before you credit is significantly damaged. So, here is what I would do: move, then rent or buy, and at last put the house on the market. Trying to sell when you had to move because of the job is defined as hardship. So, loss mitigation should accept it, even if you are not in default on payments and you should be able to protect your credit score as well.
Hi, All this information is very helpful. I am recently divorced, upside down on my house. I am trying to save the house and get my ex off the loan. However, HSBC is only willing to give me 6 month hardship. I really do not see how things are going to improve in my financial situation or market by then. I went from two incomes to one and cannot to make the payment on my own. Why are they not willing to work with me, especially with the new H4H program? So, I feel like I just need out! Do I have to miss a payment in order to start a short sale? Can they come after other possessions such as cars, etc
Hi Need Out,
I am really sorry about your situation. Unfortunately, lenders usually don't talk unless you are in default. The H4H program is known also as a Short Refi. You can receive a new loan for 90% of the market value, but you have to qualify for a loan from FHA approved lender. This might be prove to be very difficult, as your ratio of debt to income is most likely too high. Loan modification, either directly with lender, or through a competent negotiator, might be a way to go. The drawback of loan modification method is that you need to default on payments before lenders will talk to you.
It's been wonderful and at the same time sad to have read this entire blog. Thank you to all that have contributed positive responses!
Here's our situation.....
My wife and I purchased our first home (townhouse) for 132K. It's part of a condominium association, so we pay $300 in maintenance fees, PLUS $100 more on a special assessment for 3 years (total $400/mo). Since my wife has not been working because she takes care of our children at home, it has come to the point where I can no longer afford all the bills on my own salary. Her grandmother recently was diagnosed with terminal cancer and to top it off, the community association where we live is above the 40% margin in foreclosure! The board of directors is about to propose a budget for next year where the maintenance fees will increase above the $300 mark because of speculative buyers that are not paying their association dues! We've had enough with the situation in this condo--- the property values have plummeted so low that recently there was an auction on one of the units for 50K!!! More than half the units are being rented out so there is no incentive from the actual owners to do anything about this condominium because they don't live here, they just collect rent from their tenants and on top of that, the same ones that are leasing their units are not paying their association fees!
My wife and I have decided that we are going to stop making payments and eventually go into a short sale. She is the only one on the lender's note, which means that my credit will not be affected, and since mine is perfect, we figure we can afford to damage her credit to get out of this dump that has no future (even in 5 years i don't see any improvement).
My concerns/questions to you guys are: When it comes to writing a hardship letter, is it enough to say that the cost of the maintenance fees is or will be so high that I can not afford it? Besides all the examples you've listed on this forum, what exactly constitutes a "hardship"? I mean, does the lender actually go and confirm whatever "hardship" is on the letter? Or do they just accept it just because it is on writing? Also, my realtor tells me that because the value of the house is so low versus how much we owe that it practically makes the sale of the home prohibitive. How true is that statement? How long does the lender take to actually foreclose if we are unable to lure a buyer? Which, we believe will happen regardless (foreclosure)..... after all, no one is buying anything in this community except for the 50K auction!
Like I said, we don't care about her credit, we just want out of this dump because I can't afford to pay it anymore. Even if I could pay it, why would I stay here? I think that is what that 40% of foreclosure units have realized so far, that it doesn't matter if they don't pay their fees nor their mortgage because this place is looking like a slum more and more every day. Please help me and give tips and/or advice on what the "real" consequences are beyond FICO score, which is irrelevant to us. Thank you so much.
Hi,
Sorry that it took me longer to get back to you with the "longer" reply. Let me start with a question. Would you stay in the house if your loan was modified, both the principal and rate lowered? Lenders have become quite responsive to modify loans. It can happen either by so called Short REFI (you would obtain a new loan from another lender for 90% of the current market value and the difference between you old and new loan is then "forgotten", i.e. absorbed by a current lender and his investor as a lose), or by modification of your existing loan by your current lender. In either situation you would end up with a lower principal and rate that reflect your ability to pay. To qualify you need to experience hardship or the hardship is anticipated as a result of rate reet that has not yet happened. If you don't want to stay in the house - then short sale is a solution. In either case you have to document hardship and obviously lenders do expect truthfulness. You do not have to fall behind with your payments to qualify for loan modification. If you provide me with more specifics as I requested in my previous reply (What type of loan do you have? Have your monthly payments increased? When did your wife stop working? Are you contributing to medical bills (nurse, etc.) of your wife's grandmother?), I will be able to give you more accurate reply. Regarding tour agent, the current value will not impact lender's decision to approve your short sale, however their perception of your hardship will. Regarding the impact on FICO score, loan modification gives you an opportunity to protect your FICO score (as I said - you don't have to fall behind with payments to qualify). Feel free to ask me more questions. Hope it helps.
Greetings,
Would a short sale of an investment property purchased under a LLC effect the group's credit? We (3 couples) purchased a condo conversion that now has a market value that is 80K less than when we purchased it two years ago. The morgage payments are current, but we are suffering a huge deficit, because we had to result to renting the property for far less than the monthly expenses. We just want out of it, but do not want to com
Please Respond
Most likely, unless your underlying loan was a commercial loan based strictly on business credit, then the short sale will affect you. I'm thinking that all 3 coupples probably showed credit, income and asset information to obtain the loan? Is that correct?
Perhaps the easiest way to tell is simply to pull your own credit and see if the loan is currently reported there. If so, then it is likely to expect that the short sale will report as well.
Since it was a purchase loan, and since the title was held in an LLC, you mostl likely should not have to worry about any additional recourse after the short sale is completed.
Realistically, all a short sale does is put you out of being able to get a conventional or FHA mortgage for a couple years. Plenty of other ways to get financing for real estate right now. I would just look at this is a learning experience that will help you to find more creative ways to finance.
Here's the scenario: my wife and I own a home in the San Diego area that appraised at $720,000 in 2006. The first mortgage is for $464,000 and the second is for approximately $50,000. Almost all of the proceeds from the second were reinvested back into the property. My wife is the only person indebted under the two loans.
Our employment prospects were looking bleak in the immediate area, so we placed the property on the market and found employment out of state. Despite reducing the price substantially, the house sat vacant on the market for an entire year without a single offer. The house is of excellent quality on 2.2 acres, but it sits on a very steep hill adjacent to a very busy highway which has probably deterred many people from wanting to buy. Subsequently, we leased the house on a lease option in November 2007 to a young couple who could not qualify to purchase a home on their own at the time. The couple - she is self employed with a bankruptcy in 2004 from an earlier marriage, and he is well-employed and also finishing school - made all of their payments in a timely manner through May of this year when she lost several of her accounting clients. They notified us that they would have to vacate the property because they could no longer afford to make the lease payments. We were still out of state and not in a position to argue, so we renegotiated the lease payments to something that they could afford under their new circumstances. They have made all of their payments since in a timely manner. They are also paying the property insurance as a condition of the lease.
However, the amount that we are receiving in rent only covers the "minimum" payment due under our adjustable mortgage so, although we are current on everything, we are going further in debt at the rate of $500 per month because we can only afford the minimum payment. Moreover, my wife and I have recently BOTH been laid off from our jobs. We can continue to make the minimum payments and stay current on both the first and second mortgages, but clearly there will be a point of no return. We would estimate the property has declined in value to approximately $520,000 in the meantime.
The couple living in the house would still like to purchase it, and we would like to let them assume the existing mortgages and forfeit any equity just to get out from under the loans. However, when we contacted the lender (IndyMac), they would not consider letting the couple assume the loans unless the couple qualified for a "new" loan and came up with a $48,000 down payment. I have tried to reason with Indymac that (1) they would be gaining TWO people on the loan as opposed to just one now (remember, my wife is the only one on the loans) and (2) the loan amounts would not be reduced as they would be in a forclosure or a short sale. The couple has good credit (she has rebuilt her credit in the past four years and his credit score is in the high 600's). What is ironic is that IndyMac approved my wife for the original mortgage even though she had a bankruptcy on her record from 2003 yet this couple - her with a bankruptcy and him with a clean credit history - is not acceptable. In the meantime, the young lady has re-established her client base (she is an accountant) and taken on a separate part-time job, so they will be increasing their rent payments to us as of the first of the year.
The representative from IndyMac is very personable and claims to be in a similar situation himself where he owns a property in Florida that has been leased to a couple for the past three years on a lease option, but the lender will not allow them to assume his loans either without qualifying. Apparently it doesn't seem to matter whether the renters have a good payment history or not. In other words, even though they can afford the monthly rent payments, they can't afford to make the loan payments. Doesn't make sense to me.
Anyway, IndyMac is now suggesting possible short sale. However, would we be better off asking for a loan modification to reduce the monthly payments and move back into the house ourselves (since we are both now unemployed and flexible)? Also, what is the latest on forgiveness of the short sale deficit? Is it taxable or is it truly "forgiven?" Thanks for any suggestions or advice.
I'm negotiating 2 short sales with IndyMac right now. One has been very easy, as the clients got deported and are not on this continent, let alone in the house.
The other one I'm working on has not been easy. It's a negative equity loan, which they seem to want to keep on the books until they can dump it into their 2009 losses, I guess.
You're asking a question about the tenants "assuming" your current mortgage. Depending on the type of loan and how it was broken down as an investment in the secondary market, they most likely can't make assumable, especially since it requires a massive principal reduction just to make it fall within the 95% LTV guidelines right now.
If you own other property, which it sounds like you may, don't expect any help under the so called government bailout. There are basically 2 categories of loan modification, the actual modification of your existing loan, and then there is "principal reduction" which is usually part of the Hope For Homeowner's initiative which is a conduit for banks to dump people into FHA guaranteed loans, some actually at higher rates, but with reduced principal equivalent to 90% of the current value of the home. If you own more than 1 home, you don't qualify for the FHA bail out.
Modification may be an option, although IndyMac will still have what is considered a "non-performing" loan on it's books, as they would have to make a new loan for you which does not meet the credit standards of FNMA and FHLMC, so they really have no way to sell the loan as an investment. Also, the loan would most likely be at a rate far below market rates, and has no value in the secondary market, which after all is where lenders make their profits on loans.
As for your renters qualifying, you're running into the newly introduced guideline that doesnt allow for bankruptcies that are less than 7 years old. Previously they were going off of 4 years for financial mismanagement and 2 years for medical bankruptcies. FHA used to make exceptions on bankruptcies all the time, but I've not seen one be given since last summer.
Also, the IRS ruling still stands, shortsale forgiveness does not count as taxable income in "most cases", whatever that means.
Here is the IRS Link.
http://www.irs.gov/irs/article/0,,id=179073,00.html
After attending recent informational meeting about Short Sales, It really depends on the persons situation in some cases foreclosure is their best option; I say do a deed in leu of if necessary... With Short sales you need very patient buyers who are willing to rewrite the offer several times as the dates come and go without the bank approval....
Foreclosure is not the best option if the sellers can get a shortsale. Even "friendly foreclosure" is not the best option.
We're a talking about a significant difference in the affect on their credit, and also the amount of time before they will qualify for a new mortgage.
I've done plenty of short sales this year in 5-6 weeks. I've worked with investors that have bought short sales and resold them within the initial 6 weeks. I'm sure at least 2 of the 5 I'm working on right now will go that way.
The problem is that too many people out there don't have the patience or have any contacts with the lenders. The lenders in the mean time are understaffed and have tried to outsource a lot of their loss mitigation. I also see a lot of people not submitting the complete short sale information that the lender requests. People may assume that because they have no money in their account that they don't really need to submit their bank statements, or similar types of situations. This prolongs the process.
I outsource to a service that only negotiates short sales, they do dozens of them every month, and they were doing short sales exclusively before the market ever took the downturn that we're in now.
The process can definitely take time if you're not familiar with it, or if you're not in a position where you can drop everything to just focus on the negotiation when the lender calls. Typically, the biggest complaint I see from sellers is that once the lender demands something, the seller doesn't have enough time to submit it.
Anyone can negotiate a short sale. I work with a real estate agent on most of mine, but I've done some without agents.
Also a lot depends on who your lender is.
For instance, if you're lender is GMAC, IndyMac or Litton, you can crank it through in 6 - 8 weeks.
If your lender is Wells Fargo or CitiBank, you may be looking at 3 - 6 months.
Also, the offers being submitted need to be realistic. If you're writing an offer at 65% of FMV, and the house is in good condition, forget it, it's not going to happen.
These idiots on late night TV talking about 50 cents on the dollar live in markets where nobody wants to live.
If you're in CA, or even here in WA, you're probably going to be paying at least 75%, and even up to 85% of FMV in a lot of areas. For a quick short sale, write an offer at 80% of FMV, you should at least get a quick response from the lender or loss mitigation company.
My scenario:
My wife an I are getting a divorce. She will be filing Chapter 7 within the next couple weeks. As a result the, credtors will turn to me and I will be under pressure to file chapter 13, as I have too much income to qualify for Chapter 7. I would like to keep the house, but will not make enough money to pay for everything (mortgage, 2nd, all of the marital debts, credit cards, Student loan and child support). I'm considering trying to sell the house to pay off the 1st and 2nd, but market value is just below what I owe.
1st - $222K / 2nd - $44K
So I owe $266K and the home could possibly sell for around $245-$250.
Is it worth the stress and pain of doing a Short Sale if I am going to have to file Chapter 13 anyway? If I've been advised to stopo paying on everything, should I just let the house go and save my money? If I do agree to a Short Sale with the lender, they will get every penny I owe them - the holder of my second won't though... So would it still be considered a short sale if I pay off the 1st but not the 2nd and then throw the 2nd into the bankruptcy? I doubt that's an option.
I am really trying to get a grasp on all of my options so I can make the most informed decision. Any help or advice is appreciated!
We purchased a $600,000 home in 2006 on a 80/20 no interest loan and it has gone down in value about $125,000 according to our realtor's estimates. My husband is currently in an excellent contract job ending in May. He's been interviewing, but no propects yet. I am working now and have an opportunity to transfer to another office in a much cheaper market or stay here with my current job (which would not cover our monthly expenses without his salary). We'd love to move to the cheaper area. Renting out our house would only cover about half of our expenses.
We've pretty much accepted we're going to have to do a short sale - there's no way we have $125,000. We haven't missed any payments. Will his job ending and my transfer be enough for a hardship? We've tried negotiating with our bank (BoA) for the past 6 months for a modification and they won't talk to us since we're both currently working. I really want to avoid the credit hit if possible, but I see no other reasonable options. Should we stop paying now or move first so we can get an apartment there without problems?
Any suggestions are appreciated!
I have been diagnosed with recurrent ovarian cancer, not one with a good cure rate. I'm currently on short term disability with my company and going through 10 months of treatments. I have complicated my life with investment properties that are under water. I am looking to simplify and recover from treatments by moving in with my daughter and hoping to clear my life of these financial burdens. My financial status...
Property #1: Primary residence in California: about $40k equity, looking to sell and use the money to finish an apartment in my daughter's basement for my living accommodations.
Property #2: Investment property in California: loan balance $202k, worth $175k. Rental income is paying payments but not taxes and insurance.
Property #3: Investment property in Utah: loan balance $298k, worth $250, payment $2260/month, renting for $1600, and I'm currently paying the additional $660/month. Because of the portion of the payment that I'm paying, I'm wondering about a short sell for this property or does a restructure make sense?
I have no savings due to these properties and having to make payments when not occupied or fully covered by the rental amount, but have some 401k savings. Much of my current income is going for medical bills and travel to be with family during my treatment recovery. After my short term disability expires at the end of the year, I'll switch to long term disability, reducing my income by less than half and I will also need to deal with insurance or non-insurance issues. I simply won't be able to continue as I am today with the investment properties.
I've never defaulted on any loan or committment in my life. I don't want to hurt my credit rating I suppose because of my sense of integrity as many others on this site. I probably won't buy anything again on credit except maybe a car. Should I care about my credit? Should I try to pay the balance after the short sell? I'm looking for advice and options that might make sense in my situation.
Any suggestions, comments and advice will be greatly appreciated.
Thanks for all the information. This is really useful.
My situation is: Living in Massachussetts, I was laid off in November 2007. I found a great job in Denver Colorado and moved my family there in April 2008, where we are renting. We tried to sell the house prior to leaving but could not, so after 6 months, we got renters who pay about 1/2 the mortgage. The single mortgage is for $540K. If it were appraised today it might come in at $475K, but I don't know for sure.
I cannot buy in Denver because I cant save enough for the down payment. I'm just able to cover my expenses on that house, rent and the additional debt incurred preparing the house and then carrying it and this rental in the overlapping months. I'd like to be free of the house. If it sold at $475K I couldn't pay the $65K +$24K + closing costs required at the close. If my tenants leave or my wife loses her job there would be no way for me to continue to make payments on the house. So I am considering a short sale.
I have not missed any payments on the house or any credit card debt, and my FICO is near 800. I'm not currently not afraid of the credit hit -- though I have heard, and am looking for confirmation -- that it could cause my existing credit card debt interest rates to be increased by the banks/credit card companies. Is that true? If that's the case, it could hurt more than I'm aware of. I don't need to buy a house yet, and could recover my credit over the 2-3 years (this I have heard from several places -- though this blog says it takes 2 years).
I am wondering if I would be forgiven the debt, and not be taxed by the IRS as income because at this time it is not a primary residence -- However, I don't own another house, and had to move for the new job.
Can you provide some insights on this?
Thanks,
JD
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I currently own a home in a suburb outside of Atlanta, Ga. 3 and 1/2 years ago I relocated to Portland Oregon with my company. We purchased a home in Portland upon arrival, thinking that we'd be able to sell the Ga house fairly quickly, at least all evidence pointed that way. Teh short of the following 3 years is that my wife and I had our first child, her position was terminated while on maternity leave, we're down to 1 income, and apromise of no raises or bonuses for 2009-2010. I've persued a loan modification with the Portland home but was denied, with the lender Wells Fargo actually suggesting in writing that we persue a short sale. We now have offers for short sale on both homes. My short sale expert in Ga tells me that we should be concerned about the Mortgage Insurer requiring a promissory note to carry a portion of the remaining balance. My West Coast short sale "expert" says he hasn't heard of anything like that before in over 200 short sales.
The short sales are both set to close by the end of November. We opted to go this route to minimize the effect on our credit, but it looks like now we may still be left holding the bag. I have gotten advice to sign the prommisory note, and then basically not pay until it goes to collection, settling on a fraction of the original ammount, but that seems shady and like it could worsen our credit.
Can anyone out there help me fill in the gaps?
About a year ago i co-signed with a friend so he could purchase a condo, unforeseen problems and he has not made a payment in 6months, and has decided to short sale. i have no debts and my credit score was in the 800's. How bad is this for me, and how can i get out of having my credit ruined any further, and will the lenders forgive on my part?
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