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Debbie, Home Owner in Modesto, CA

We are concidering a short sale on our home, my husband has a 401k and can we lose this, or should we file for bankruptcy..Thanks Lost

Asked by Debbie, Modesto, CA Thu Dec 1, 2011

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I have completed many short sales and have never had a 401k (even a sizeable one) stand in the way of an approval. Your retirement assets are generally not accessible by your creditors in any situation. More concerning would be cash on hand, or other property with equity, stocks...etc. If you have a lot of assets, the lender may ask you to contribute something ( usually pennies on the loss, btw) but I have never had them require or even request a client liquidate their 401k.
Web Reference: http://www.homesbyminna.com
0 votes Thank Flag Link Sun Dec 18, 2011
WHY IS A SHORT SALE BETTER THAN A FORECLOSURE?

Short sales are just about everywhere...it seems like you can't get away from them. Many sellers, loan officers and Realtors say they know a lot about short sales, but don't know how the short sale process works or even why a short sale is a better alternative to a foreclosure.

A short sale will enable the seller to purchase a home about 2 years after a short sale completion while a foreclosure will make you wait 5 years. In addition, short sales are better for the lender and it will keep the house occupied, with water and electricity still on and also keep the lawn mowed. Plus the bank will lose less money through a short sale.

PROS
No Foreclosure - foreclosures can be a hard and stressful process for a family.

Being Proactive - facing a foreclosure head on will help give you some control over the process.

Start Newer, Faster - minimizing damage to your credit can help you and your family get back on your feet faster.

May not owe anything after the short sale - you can try asking the bank to cancel your debt altogether. It does happen, but not all the time. Primary residences are usually treated more favorably by the lenders.

CONS
There is still damage to your credit - when a short sale is done, it is still documented on your credit but won't have the same impact as a foreclosure for most creditors.

Tax Consequences - there may be tax consequences if the bank forgives the debit and will issue a 1099 to the IRS for the amount of debt forgiven.

Bank could demand payment for their loss - the bank doesn't have to forgive the debt. They are able to ask you to pay them back for the difference on the sale and what is owed, but you will need to agree to this.

There are no guarantees in a short sale - whether the bank will approve the sale or forgive your debt, but short sales offer a better alternative to minimize the downside of facing a foreclosure.

Disclaimer -There can be legal and tax consequences. You may want to consult with an attorney or tax specialist before attempting a short sale. A real estate agent cannot give you legal or tax advice.
DO YOU QUALIFY? - Can you answer Yes to all 4 Questions?

1. The Homes' Market Value Has Dropped. Hard comparable sales must substantiate that the home is worth less than the
.comunpaid balance.

2. The mortgage is in or near default status.

3. The seller has fallen on hard times. The seller must submit a letter of hardship that explains why the seller cannot pay the difference due upon sale, including why the seller has or will stop making the payments.

4. The seller has no assets. The lender will want to see a financial statement and recent tax returns.

WHAT TO EXPECT?

1. The lender will want to see your entire financial picture.

2. The bank may want you to sign a promissory note for the deficiency between the amount owed and the amount your home is sold for.

3. As the seller, you cannot receive any proceeds from the sale. None. Period. Your Realtor and title company may have to work for reduced fees.

4. The banks are overwhelmed with short sales and many times a decision can take up to 60 days or longer.

5. The property may be foreclosed on during the short sale process. Be sure to use an experienced short sale company who should be able to get the foreclosure postponed.

6. Do not expect to receive information on a regular basis, as there may be weeks that go by without news from your lender.

7. The bank will want to get a BPO (Broker Price Opinion) and/or an appraisal of your house.

8. Be patient. This is the best policy. Try to avoid being stressed out over something that you are not able to control.

Here is a list of the documentation that may be required by lender to determine if the owner qualifies for a short sale.
• Listing agreement with Realtor showing the property is on the market for sale.
• Comparable market analysis which includes sales and listings
• Bank statements
• Pay stubs
• Tax returns
• Purchase/Sale Agreement
Tammy Hayes, Realtor
Green Lion Realty, LLC
Phone: 941-276-6185
Email: tammyhayesre@gmail
0 votes Thank Flag Link Fri Dec 2, 2011
unpaid balance.

2. The mortgage is in or near default status.

3. The seller has fallen on hard times. The seller must submit a letter of hardship that explains why the seller cannot pay the difference due upon sale, including why the seller has or will stop making the payments.

4. The seller has no assets. The lender will want to see a financial statement and recent tax returns.

WHAT TO EXPECT?

1. The lender will want to see your entire financial picture.

2. The bank may want you to sign a promissory note for the deficiency between the amount owed and the amount your home is sold for.

3. As the seller, you cannot receive any proceeds from the sale. None. Period. Your Realtor and title company may have to work for reduced fees.

4. The banks are overwhelmed with short sales and many times a decision can take up to 60 days or longer.

5. The property may be foreclosed on during the short sale process. Be sure to use an experienced short sale company who should be able to get the foreclosure postponed.

6. Do not expect to receive information on a regular basis, as there may be weeks that go by without news from your lender.

7. The bank will want to get a BPO (Broker Price Opinion) and/or an appraisal of your house.

8. Be patient. This is the best policy. Try to avoid being stressed out over something that you are not able to control.

Here is a list of the documentation that may be required by lender to determine if the owner qualifies for a short sale.
• Listing agreement with Realtor showing the property is on the market for sale.
• Comparable market analysis which includes sales and listings
• Bank statements
• Pay stubs
• Tax returns
• Purchase/Sale Agreement

Tammy Hayes, Realtor
Green Lion Realty, LLC
Phone: 941-276-6185
Email: tammyhayesre@gmail
0 votes Thank Flag Link Fri Dec 2, 2011
If you have assests to cover any shortage in the payoff you will not be granted a short sale the lender will requrie you to pay it off from the 401K or whatever other funds you may have at your disposal. If you're trying to avoid this, you should file for bankruptcey.

Before you do anything you need to sit down with an attorney in you area and take 30 -60 minutes and discuss what your options are.

Sorry you're going through some tough times, do exacerbate them without seeking legal counsel.
0 votes Thank Flag Link Fri Dec 2, 2011
Hi Debbie,
A 401K can not be touched it is considered retirement money. No need to file bankruptcy.

Ramifications of Foreclosure, Short Sale or Deed-in-lieu-of Foreclosure

Here are some of the ramifications of foreclosure, short sale or deed-in-lieu-of-foreclosure, there are many more like; insurance rates, your job (yes employers are checking credit records these days).

Your credit score will be reduced by 200-400 points, short sale and deed-in-lieu-of a little less 100-200 points.

All forms of foreclosure stay on your credit report for 10 years.

After you have gone through foreclosure, short sale or deed-in-lieu-of-foreclosure there will be what is known as the "waiting period", this period of time varies for each and can be reduced if you had some type of extenuating circumstances that caused the foreclosure:
Waiting Periods to Buy After Foreclosure – “YES” Short Sale and Deed-in-lieu-of are forms of foreclosure
• Buying after a Walk Away Foreclosure
The waiting period is 7 years
• Buying after a Foreclosure
The waiting period is 5 years with 20% deposit up to 7 years.
• Buying after a Foreclosure with Extenuating Circumstances
The waiting period is 3 years with 10% deposit up to 7 years.
• Buying after a Deed-in-Lieu-of Foreclosure
The waiting period is 2 years with 20% deposit, 4 years with 10% deposit up to 7 years.
• Buying after a Deed-in-Lieu-of Foreclosure with Extenuating Circumstances
The waiting period is 2 years with 10% deposit.
• Buying after a Short Sale
The waiting period is 2 years with 20% deposit, 4 years with 10% deposit up to 7 years.
• Buying after a Short Sale with Extenuating Circumstances
The waiting period is 2 years with 10% deposit.

In addition to the waiting period and minimum down payment, you will be required to have a minimum FICO score and the home purchase must also be the principal place of residence, not a rental nor a vacation home.

Lastly, most loan applications will ask the dreaded question "Have you ever been foreclosed on?" this stays with you for life, many think that because it will not show up on the credit report after 10 years they can answer "no", well lying on a loan application is a felony that carries a major jail term, so be aware.

Want to get your life back in order and into a home? Want to live in your future home while we get you approved? We have a program that does just that “gets you approved”. “Start Now”, we can have you in a home in as little as 6 months. Visit http://www.MortgageTrainingProgram.com for more information.

Bob Patrick
Buy a home after foreclosure, short sale, deed-in-lieu-of or bankruptcy expert.
bob@MortgageTrainingProgram.com
(860)392-8353 cell
Movin-On LLC
Revolutionizing the Real Estate and Mortgage Industries
(860)653-6111
http://www.BuyaHomeAfterForeclosure.com
0 votes Thank Flag Link Thu Dec 1, 2011
Hi Debbie,

Contact a Real Estate Attorney and a Bankruptcy Attorney. (Most likely, the BK Attorney will advise you to file BK - so they can make some money). I believe your husband's 401K cannot be touched if you do a short sale as it is retirement money. However, you have to have a verifiable financial hardship for a short sale to be approved. A short sale affects your credit/future less significantly than a BK or a foreclosure do. You may also want to contact your lender(s) to see what options they may be able to offer you. If you decide to so a short sale, try to find a Realtor who is a CDPE (Certified Distressed Property Expert) or at least a Realtor who has successfully closed several short sales.

Shanna Rogers
SR Realty
http://www.RealtyBySR.com
0 votes Thank Flag Link Thu Dec 1, 2011
Debbie,
You need professional advice and factual answers. As an agent, our default answer is often, do a short sale. BK Attorney's default answer is to declare BK. Before taking either bit of advice get your questions answered and consider all of the ramifications.
Both options will affect your credit. The BK will likely stick with you longer, 7-10 years and may be the best answer if you have lots of other debt you are behind on too. The short sale, if successful will affect credit, but your capacity to get another mortgage may come sooner, depending on chap 7 or 13 and how quickly you rebuild your credit.
I don't believe your husband’s 401k is accessible in either event, but I want you to get your final answer from an attorney. I'm sorry for your difficulties, but you are in good company.
0 votes Thank Flag Link Thu Dec 1, 2011
You are right to talk to an Attorney about your BK.
I can tell you about a Shortsale on the house:
California is a Non-Recourse state; which means that normally a Lender cannot come after you for the Deficiency.
But, in order to do a Shortsale, you need to have a HARDSHIP and have it accepted by your lender. Being Upside-Down is not sufficient hardship.
If you have the ability to pay your mortage, you should probably consider staying where you are and waiting for the Market to rebound. Fact of life!
You might want to talk to the Attorney about including, or not including the House in the BK.
You can talk to him about the 401K too. It wouldn't be a consideration in the Shortsale.

Good luck and may God bless
0 votes Thank Flag Link Thu Dec 1, 2011
Hello Debbie,

I'm very sorry to hear of your financial dilema, but you are in good company. This issue is faced by many thousands of people currently, and more so in your California market where you are located.

Unfortunately, a Realtor is not the appropriate professional to advise you on whether you should file for bankruptcy or consider liquidating your 401k. However, I am able to suggest that you have the short sale conversation with your lender first. You will not be able to even consider a short sale, unless this has been agreed to by your lender. The lender may also dictate terms of the short sale, and can change those terms during the process even after they have agreed to it. After you have determined whether a short sale is an option that your lender will allow, then a realtor can step in to guide you in the selling process.

The very best person to advise you will be a local real estate attorney or bankruptcy attorney. Hang in there, and I wish you the very best!
0 votes Thank Flag Link Thu Dec 1, 2011
Please contact a bankruptcy attorney ASAP, they are the ones qualified to answer your question best! Good luck and blessings for a soft landing. Sincerely, Paul
Web Reference: http://www.hestonlaw.com
0 votes Thank Flag Link Thu Dec 1, 2011
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