Foreclosure in Chicago>Question Details

Scott, Home Seller in Chicago, IL

Should I stop making mortgage payments?

Asked by Scott, Chicago, IL Thu Aug 27, 2009

I own a home in Illinois, and moved to CA. I've listed the house for sale and rent for the last 5 months, lowered my price by $40K, still very little luck. I applied for a Short Sale with the bank and they said it will take 60 to 90 days. They said that foreclosures take priority. I'm still current with monthly payments, have excellent credit, but can't keep paying for a house with nobody in there. My realtor advised me to STOP making payments to try to speed up the process. Is that true? I need to sell before this tax credit is over and the winter comes.

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13
Scott - no doubt you are in a tough situation. Have you consulted with an attorney yet? One who is versed in short sales or deed in lieu and can help advise you on the differences?

Do you have one or two mortgages on your home? Are they with the same or different lenders? Do you know if you have mortgage insurance on your home? Are you buying or renting now in CA?

These are all things that can and will affect how you're treated in a short sale situation.

I would also advise speaking to a sharp CPA who understands how short sale/deed in lieu/foreclosure deficiencies may affect you in regards to your income tax liability. While in many cases if the bank 1099s you for the gap/foregiveness you can avoid paying taxes on that "income" this only applies to debt from your primary residence - yet another thing you need to be cautious about since you no longer reside in the home.

Regarding list prices and short sales - if you decide your best option IS the short sale, doing the upfront work that you've been doing is very helpful. Your agent should be able to help you with value by showing what (if anything) has successfully sold in the immediate area. The agent(s) who will end up doing the Broker Price Opinions (BPOs) on your home will be using that same data. A log of how long the house was listed at XX price with no offers, then reduced to XX price with no offers, then reduced to XX price which drew an offer can be helpful as well - shows that you didn't just slam a superdiscount price on the house, but that you were making a real effort to sell the house as high as possible.

If you do get a buyer - yes, there is a good chance that prior to your bank approving your short sale, the buyer will have to wait 60-90+ days for an answer. And yes, first time buyers (at least in my area) are currently avoiding the short sales because they want to know they will close by 11/30 to claim their $8000 tax credit.

But, whether that program expires or gets extended, when the dust settles there will be first time buyers again, and they will start to once more chase the short sales. And if the first buyer walks because they don't want to wait, your agent should continue with the process as though they did not: this can result in an approved short sale that just needs a new buyer plugged into the deal. Often, that takes less time than starting over!
Web Reference: http://www.kimnoonan.com
0 votes Thank Flag Link Tue Oct 13, 2009
Scott,
I suggest that you identify a real estate professional who is certified in working with distressed properties. is the Certified Distressed Property Institute. When an agent is educated in the process, they are significantly more qualified to effectively help you. In order to have a short sale, you have to qualify. 1. Hardship, 2. Insolvent 3. Monthly shortfall of income. Those are the 3 qualifications for short sale. The fact that you moved is Hardship. If the current valuation of your home is less than your debt, you meet #2. Finally, if you have a shortfall in your ability to cover all expenses, inclusive of this property, you qualify.

If you do not meet all of those qualifications, you will probably be declined for a short sale. Before you stop making payments, be certain that you really want to enter into foreclosure. When there is a foreclosure, the lender can come after you to pay the debt; doesn't always happen, but it could. The IRS will most definitely expect you to pay tax on the amount of the foreclosure. So, think that through. It affects your credit.

I hope this helps. Good luck.
Web Reference: http://www.cdpe.com
0 votes Thank Flag Link Tue Oct 13, 2009
I don't know why a realtor would advise you to do such a thing! What if the home doesn't sell? You will end up in foreclosure! It is best that you do a Loan Modification. And no, you don''t have to pay anyone anything! You just need to know how present your case to the bank!
0 votes Thank Flag Link Tue Oct 13, 2009
Scott here again,

I really appreciate all the advise. I've applied for the short sale by providing financial statements, hardship letter, paystubs and so on. They said that I meet all the requirements and the next step is waiting for a specialist to be assigned so he can appraise the value of the house (60-90 days). This is where the realtor should get involved to show the appraiser the comps of what's been selling in the area? Whats after that? If I find a buyer right now at a price I determine, and the appraiser comes back with an amount much higher, the bank won't approve it right?

In my mind, a perfect solution would be to get someone in the house right now to pay CHEAP rent while I continue making payments until the short sale goes through. That way the buyer doesn't have to worry about waiting to get in the house and can move in before winter. If they miss the $8000 tax break, they still save over $10K on a cheap house. I guess buyers like this don't come around often though.

Just renting with no intent on buying seems like a temporary fix that may cause more problems in the long run.

How likely is the bank to come after me for the defficiency? Is that legal in Illinois? That's what scares me the most.
0 votes Thank Flag Link Mon Aug 31, 2009
Rents of $1500 on a $2,000 note is a sure loser. Not only will you pay out the $500 month for PITI but you will also pay out of pocket for all expenses. Do you want to pay out this smaller chunk every month and take on an unpaid part time job as landlord for many years to come, or just deal with this much bigger loss right now and get on with it? Your choice.
If you want to keep it I suppose you could try a loan modification to see if you can get your payment to a point where holding the property makes sense.
Sad to say, but from my experience, foreclosures do take priority, however that does not mean they will not approve a short sale if you are not behind. The reason that your short sale has gone nowhere is because you do not have a buyer for the home. Banks will do NOTHING to process your short sale until you have a buyer. NOTHING. They won't even look at your paperwork. You may as well just twiddle your thumbs all day.

If you feel that the short sale is your best solution, then drop your price until you find a buyer! Yes the buyer will have to wait the 60-90 days for the short sale to go through, and yes they will expect a good price to hold their interest. The right price will get you a buyer. You have not reached it yet.

There will be no progress with this short until your buyer is in place. Proceed accordingly.
Web Reference: http://www.homesbyminna.com
0 votes Thank Flag Link Mon Aug 31, 2009
Scott,

Thanks for the additional background. Sounds like a tough situation all the way around. A couple things to consider:

1. Speak with an accountant regarding the cash flow loss and depreciation potential to determine how many after tax dollars you're loosing. This will help you take an objective look at the rental feasibility. We all know it's tough right now, but I wouldn't encourage you to throw in the towel until you know the true cash flow math.

2. Try speaking with the lender about your situation. This may take a long time, and may lead nowhere, but you'll probably regret not trying. If nothing else, it may lead to a short sale solution.

3. Talk with an attorney who specializes in personal finance to discuss the harm in ceasing mortgage payments. You'll want to know if the lender has recourse on assets you may have if you get into an adverse situation if you can't pay. A Realtor should not be giving you this advice. This is like letting a podiatrist do brain surgery.

I hope things go well for you and empathize with the frustration. You should also discuss the rental listing with the broker you currently have. Perhaps request that the rental listing be an "open listing" which allows you to hire additional agents that specialize in leasing. In this case, you should only owe a commission to the agent that brings you the rental. I would also consider attempting to get the broker to cancel the listing or refer it to a short sale specialist. Some agents have formed unique operations to help sellers get short sales done, this is no job for a novice.

Keep the property for sale for now and see if a short sale will work. An ideal outcome may be that you lease it to a potential buyer who may be patient to wait for the bank approval. A lot of moving parts, but complex problems usually require complex solutions.

I don't think there's any hard evidence that a lender will approve your short sale faster if you're behind. It is almost guaranteed, however, that they will begin foreclosure proceedings. They will likely want to know that there is a hardship, see documentation to prove the hardship, and know that you've exhausted all methods of getting them paid before they will give you the short sale approval. In my experience this is what they look at when a short sale is considered, but I'm sure every bank has a unique process and they will be some variables to this. If your income is tied to California, the lender cannot reasonably expect you to forgo housing cost in California to pay your mortgage in IL. This should be the basis of your hardship case to the lender.


Best of Luck.
0 votes Thank Flag Link Sat Aug 29, 2009
Hi, Scott here

Here's some more details on my situation. I owe the bank around $203K and am listing at $165K. I'm competing against at least 3 other homes in my community in foreclosure. I am renting in CA. I listed the property in question for sale and rent because I need to get rid of it by any means. My monthly payment (mortgage/tax/assoc) is $2015, but I'm asking $1500 for rent. I'm guessing that's too high. Even if someone offers my asking price and wants to buy right now, how will I come up with $40K? I'm asking myself how much is my credit worth to me. Even if I had $40k to give up, which I don't, is credit worth that much? I don't think my agent is doing enough to move this forward, but I signed a listing agreement. Should I take out a personal loan to cover the difference or hope that the Short Sale gets approved before Dec 31st? If it doesn't get approved, I'm stuck with the house through the winter. If I get someone to rent, selling is more difficult. Either way I'm watching hard earned cash go in the garbage! What should I do?
0 votes Thank Flag Link Fri Aug 28, 2009
GREAT idea lease your home have you considered a lease purchase? Many agents are not interested in lease for fact their commissions are less than a sales. We list our homes both ways lease or sale therefore best interest for our clients.

You can tank your credit real fast not paying your mortgage years for recovery on credit scores keep that in mind. Many times families will take a second job till home will sale or lease make up the loss income of two households

Good luck
National Featured Realtor and Consultant, Mortgage Loan Officer, Credit Repair Lecturer
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Lynn911
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0 votes Thank Flag Link Fri Aug 28, 2009
Hey Scott,

I disagree with an earlier post that having your home for rent and for sale undercuts your position. The truth is that a consumer is either looking to rent or to buy. Either way, your position improves and it's unlikely that the consumer will be confused by your offerings. If you haven't already, I'd hire a rental specialist to handle the lease of your property. Having the same agent do both is not best for you. First, the rental and the sale listings will compete with each other if listed separately. Second, an agent that sells property is likely not equipped to handle a rental. There is very little reason that it should take 5 months to rent a property unless the property is undesirable, the price is too high, or the broker is not getting potential lessees in to see it. If you feel your price is too high, adjust and hedge against additional market time without a tenant. You can get around the lease objections to keeping the home for sale by offering an incentive to the lessee should the home sell prior to the fulfillment of the lease.

Once your home is occupied, I think you will find that it may be more difficult to sell. First there's a matter of the lease and possession, and then there's the matter of getting the prospective buyer in for a showing in a timely manner. Once you have a tenant, you can continue to list the home, but understand it is less desirable to an residential buyer than if vacant.

As far as the stop making payment business goes....
If the choice is between staying current on the home you live in and staying current on the one you don't, you have some decisions to make. Certainly it is not a sustainable situation to pay both if you are using credit cards to buy the groceries, heat, car insurance, etc. I wouldn't take a Realtor's advice though, I'd speak with an attorney that specializes in financial reorganization. You should know what your options are and what the consequences are, before you fail to make a payment. I agree with many on this post that the banks are slow to respond and overplaying the hand they have. Eventually, they will realize that they need to take measures to preserve the communities they are damaging through the lack of proactive actions such as modifications and short sales for those that need them. Until then, contracts are still contracts and we have to do our best to abide.

Best of Luck.
0 votes Thank Flag Link Fri Aug 28, 2009
Just a quick thought to you, is the rent you are asking too high? Consider what minimum rent you could live with for a while and try to get at least someone in there to assist with the expenses...
Same thought for the sale price, which of course depends largely on what you still owe to the bank....
If you want to keep your credit rating and not have the burden with the property you may have to sell it without much in your pocket, but I do not know your numbers, just a thought for you.....

Stopping mortgage payments, hm does not sound like the right idea especially if you are currently living in CA I am assuming you bought another property yes?

Good luck to you and yes Attorney/CPA to consider the issue with the bank short sale/foreclosure is recommendable or a very good, very experienced short sale Realtor.
Good Luck to you!
Edith Karoline YourRealtor4Life
Working always in the BEST interest of her clients
Your Chicago Connection
EdithSellsHomes@gmail.com
0 votes Thank Flag Link Fri Aug 28, 2009
Scott,

It may be helpful to know that you are not alone in this experience.....there are many responsible people such as yourself that are in the same delema.

We don't believe a real estate professional is qualified to advise you to stop paying your mortgage so this advice should be recieved with great caution. On the other hand, an attorney or CPA may be able to best advise you on the best course of action.

Our recommendation is to consult an attorney or CPA for the advice you require.

Best wishes,
The Eckler Team
0 votes Thank Flag Link Fri Aug 28, 2009
Different types of loans are handled differently by the banks. FHA loans authorize short sales up front when marketing the property, most other loan types require you to present the offer to them when an offer is received. If you have a fha loan I would suggest that you contact hud and indicate what your trying to do. Hud would be interested if the servicer is not willing to mitigate losses for them. You can check huds processes and contacts at http://www.hud.gov.

If your loan is not a fha loan, then the banks will not do anything until there is a offer. Also there will be some issues since you are not living in the property and what the hard ship is that is causing them to accept the short sale and the loss. If you have the asset to absorb the loss you most likely will not be approved for a short sale. The bank will look at tax returns,bank statements, pay stubs and net worth to make their decisions when a offer is received.

It is difficult to manage the process when your living in another state and it is very important to stay of top of the situaiton. If you rent or sell your property you need to focus on price and continue to understand the market price and address to get possible canidates. The trouble with renting is who is going to manage the property for you and what will be your cost to you and thus the net funds to you. Also who fixes things that are wrong with the property.

It is also very important to have a real estate agent who understands the short sale process. Not all realtors put in the efforts or understand what needs to be done with short sales with the banks. Make sure who you have hired, knows what is needed to get the job done. Check out http://www.cdpenow.com to find a certified distressed property expert in your area.

Lastly if you should make the payments or not. This is a personal decesion, because it will effect your credit rating! If your net worth and hardship do not support a reason for a bank to accept a short sale, there is no reason to stop make payments to get the banks attention.



Keith Manson
First Weber Group
Certified Distressed Property Expert
Greenfield, Wisconsin
0 votes Thank Flag Link Fri Aug 28, 2009
Scott, your situation is all too common these days; but don't panic and try to think objectively and make good decisions, and I'm sure you can navigate through this.

While I of course don't know the specifics of your property or situation, I do have a couple of thoughts that may help guide you. First, I don't understand your agents advice about stopping mortgage payments- all this will speed up is foreclosure, and that should be an abolute last resort.

Listing a home for rent and for sale at the same time can be counter productive; I realize you're trying to hedge your bets, but what it really does is make your property less attrative to both markets. Renters don't want to commit to a home that may be sold, because that creates uncertainly for them- will the new owners know how to honor the lease, will they be good landlords? And is the current (selling) owner going to have much stake in the property should questions or repairs arise? A renter with the choice of a clear rental property vs. one that's also listed for sale will almost always choose the first type.

On the flip side of this, if it's a house you're selling (that's what I understand from your post)- as opposed to a condo or other type of home, interested buyers will, most often, want to take posession and live in it after purchase. But if it's listed for rent, or may have renters in it with a lease or rental agreement before closing, they may have to honor the lease and won't be able to take posession until the term of that agreement is completed. In other words, single family properties are far less likely to be purchased by an investor (landlord) than an owner/occupant. So, the potential rental makes the purchase less attractive to them.

My take would be that you need to decide if you want to commit to either 1)selling, or 2)renting your home. A lot of people in this market are sitting out the sale market and renting their homes until things improve (and they will, eventually). In which case, be aggressive about pricing the rental. Even if you rent it for, say, only 50% of your mortgage/taxes/insurance (and I'm just making that figure up), that's still cash flow each month to help make ends meet until you are on more solid ground, which will preserve your equity, your credit, and the ability to sell the home in the future.

The other advice I would have in this situation is to consult (to help decide rental rates and scenarios) or hire (if you definitely decide to go this route) a professional property manager. Listing agents are good at a lot of things, but all of them aren't necessarily experienced with property management, and there are a lot of nuances with the rental vs. sale markets, landlord/tenant relations, vendor management, repair and upkeep, and rental collections/monthly funds disbursements. Especially if your agent hasn't been assertive enough with your rental pricing or marketing to land a tenant, a professional property manager may better serve your needs in this situation. Here in Seattle we've found that while rental homes are on the market longer than usual, if they are priced well within the market, they still rent within 30-45 days (vs. 20-30 days normally).

A good place to look for a property manager would be http://www.narpm.org (NARPM is the National Association of Residential Property Managers), or search online locally for property managers (be sure to review their credentials and professional associations).

Good luck-

Rob
Web Reference: http://www.rd-house.com
0 votes Thank Flag Link Fri Aug 28, 2009
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