Though I don't get it. You're including in your explanation for why you'd like to do a short sale "we put no money down into the condo." Let me make sure I understand this. You took out two mortgages. You told the lenders you'd repay the loan. The banks agreed to lend you 100%, based on your promise to repay. Now your property is worth less than you paid. And because you didn't put anything down, that somehow supports an argument for a short sale? What if you had put $10,000 or $20,000 down? How would that change the scenario? Actually, it seems to me that it'd be more of a hardship if you were in a position to lose $20,000.
It might be possible, depending on (1) who your lenders are (some are easier to work with than others), (2) what you say to satisfy the hardship requirement, (3) what your financial documents show as far as ability to pay the mortgage.
Technically, being upside down or undervalued is NOT accepted as a hardship by lenders. And regardless of what you say in the hardship letter, they will review your tax returns, bank statements, pay stubs, and credit report. If they determine that you can afford the mortgage, then the short sale will be declined.
The fact that you have 2 lenders adds another level of complication. Quite frequently, the 2nd lien will demand more money for payoff than the 1st lien will agree to grant them out of the sales proceeds. Even if you - or in some situations, the buyer - scrape up additional funds to pay the 2nd, the 1st lien will have the right to demand that money for themselves (since they are in 1st lien position).
Like I said - possible, but may be difficult... I'd need to know more details. Before becoming a realtor, I worked as a professional Short Sale negotiator for other realtors. So feel free to call or drop me a line - I will be happy to share my experience.
Realtor, Short Sale Specialist
If you are now considering a "Strategic Default", defined as walking away from a home even though you can afford the payments, you had better weigh ALL of the options and their ramifications.
Start with this general article, "Strategic Default: Should You Do It?"
While the article generally touches on how long you will be affected, I HIGHLY ADVISE you get your information from authoritative and comprehensive sources. To do this, you must speak with both a CPA and Tax Lawyer. Agents providing responses on Trulia, myself included, will at best scratch the surface of this issue - you need professional advice if you decide to strategically default.
One authoritative source you can reference on your own comes from the Fannie Mae Selling (read underwriting) Guide, located at https://www.efanniemae.com/sf/guides/ssg/sg/pdf/sel120110.pdf
Starting on page 430, section â€œSignificant Derogatory Credit Events â€” Waiting
Periods and Re-establishing Creditâ€ covers the waiting periods before you will be able to buy again broken out by â€œeventâ€.
Donâ€™t be â€œpenny wiseâ€ and â€œpound foolishâ€ about this decision. Know exactly what your options are and the ramifications of your final decision.
What is a short sale?
1. You owe 200K on a condo, you can sell for 100k and bank says, "go ahead and sell, but bring with you $100K to the closing."
2. You owe 200K on a condo, you can sell for 100K and bank says, "Go ahead and sell, but I reserve the right to collect the $100K later most likely via a collection ageny to whom I will sell the right to collect." By the way, in FL this collection is possible for up to 17 years after the sale
3. You owe 200K on a condo, you can sell for 100K and bank says, "Go ahead and sell, but sign this promisory note that obligates you to repay the $100K
4. You own $200k on a condo, you can sell for $100K and bank says, "Go ahead and sell and I wiill forgive and relieve you of any requirement to repay the $100k. Oh, but you will be held accountable to pay the IRS for $100k in additional income. Hmmm, what to you think that IRS surprise will add up to?
In each situation the banks, morgage services and investors involved in your mortgage have their own set of fluid rules and formulas that they try to apply. They may choose to interpret their rules one way today and differnetly tomorrow. It is really the wild, wild west of real estate. Anything can happen. Yes, #4 has occured without hardship and #4 has even happened on 2nd homes. Anything can happen!
The responses offered here and by others reflect how distressing this process if for everyone. We each wish we could offer a concise..absolute response, but so much of what happens is so acutely dependant on the skillls of the agent/negotiator, the contact resources they have, and the organizations involved.
Best of luck in your sale.
The short sale processs is very lengthy and complicated. Even after the sellers have convinced the lender they qualify, the property has to be appraised by someone on behalf of the lender. Then the lender determines what percentage of loss they are willing to take after receiving offers from prospective buyers.
Once a buyer makes an offer on a short sale, they can expect to wait for 2-6 months to hear if their offer is accepted. (It is further complicated if there is a second mortgage on the property.)
-Paycheck Stubs, if self-employeed, a 6 mo. Loss & Profit statement
-Bank Statements for all accounts
Other information may be required as well, as varies from state to state and lender to lender.
You have to prove hardship, merely having no equity and a de-valued home will not be approved with your lender. If you need to move, you might consider renting your condo.. But be sure your Condo Association allows rentals, or has a requirement for a percentage of owner occupied units.
The goal of a short sale is to avoid foreclosure on your record... your credit will be severely affected for 7-years... Try renting if you absolutely have to move.
Best of luck,
David Jaffe-SRES, CDPE
Make sure you choose a short sale company that won't charge you for their services, and please contact them for more information before you decide to go that route.
I have been working with short sales for over 4 years and I have seen it all. Feel free to contact me for more questions.
Unfortunately if you want to short sale your condo you will have to prove that true hardship exists. The lender will require you to show your 1099's, tax records, bank statements and other information. If you have liquid assets your short sale will likely be denied and you will have to honor your obligation to your mortgage. I am not saying it is impossible to get a short sale approved in your situation, but it will definitely be more difficult.
You also want to consider that since you have a second lien that lien holder CAN come after you for the deficiency amount, even if you did get by the first and get a short sale approved. In California the statute of limitations for such an action is four years, so any time up to four years after you closed you could be liable to the second lien holder for the delinquent amount owed on that loan.
Your best bet in this situation is to try and get a loan modification. You can also try to get your property taxes reduced. If that still does not help and somewhere down the line you need to do a short sale that is warranted, make sure to work with an agent who understands short sales--you want to make sure to get an agreement from the second lien holder NOT to come after you for the delinquency.
Best of luck,
Rachel LaMar, J.D.
LaMar Real Estate, Inc.
special phone number to a department that handles homeowners with missed payments. It is at this level,
after missing 2 payments, that you might be able to plead your case. But again, you will have to convince
the lender that you would rather lose the house in foreclosure than continue making payments and do a short sale.
David Cooper! Las Vegas Foreclosure Investor in Bank Owned REO's with Cash Flow +1-7024997037
not a real estate agent
it is never a good idea to miss payments if you can make them. in your case you have stated that you have no hardship. it is senseless to hammer your credit needlessly. it might help to ask yourself what your credit rating is worth to you and determining if the damage is worth it.
if you are contemplating a strategic default that's another matter that's between you and your god. lots of folks game the system in this fashion so you'll be in good company.
i cannot see how this is confusing to anyone here. when purchasing with no money down you rolled the dice...sometimes they come up 'snake-eyes'. if you can pay your bills, you should.
Almc2011, although you might be able to do a short-sale, your mileage may vary. Keep in mind that even in cases where the borrow is a few payments behind, many--if not all--lenders will run calculations to determine whether they'd get a higher yield from the short-sale or foreclosure. They go with the option that will produce the higher yield. Since your note is still performing, they have little or no incentive to allow you to do the short-sale.
(Satisfaction of mortgage, note release, etc.) . Also, I will contact a CPA, to make sure that the 1099 that i will be receiving from the lender will count as nontaxable in my personal income taxes.
By now you already got 103 answers from Licensed Realtors. I believe you are asking for a solution, to have clarity on your situation. None of us will not be able to help you without getting to know your situation and your goal. And the consequence involve re-align your financial blue print, legal liabilities, taxation, future credit. etc etc. It is not just a Realtor question.
I am member of PWMG, It is a small group of licensed professionals,(including lawyers, CPAs, Investment advisors, Risk Mangament(insurance) Banker, Realtors getting together once a month in San Mateo, Ca helping our mutual client to solve problems.
I might be able to arrange a free consultant with my team for you to give you clarity on your situation. Contact Trulia if you like.
The FDIC has a very simple NPV test that many lenders adhered theirs too when putting this mathematical spreadsheet together. People aren't aware that aside from the hardship it is a numbers game. Also, when determining a hardship you should compare 2010 income (AGI) to that of the year you purchased the home. When you purchased your home you provided the last two years of income and the lender approved your loan based on that. Many think their income hasn't changed but are amazed to see the drop in income from then to now...
I do not have a direct link for the NPV test sorry its a spreadsheet I did get from the FDIC. If you have excel I can email it to you.
What is a short sale?
A real estate short sale is a form of agreement between the seller of a home in the
beginning stages of foreclosure and their lender, allowing the home to be sold for less
than the existing loan balance outstanding. The mortgagee would accept less than
the loan amount in order to avoid a foreclosure proceeding. This short sale would
result in a substantially discounted purchase price for the buyer of the home. The
buyer would then proceed with the purchase of the home much the same as in any
conventional real estate transaction.
Why would a lender agree to a short sale?
Lenders are in business to make money and keep down losses. When a borrower
gets behind on their loan payments, the lender has the right to take the property to
pay off the debt. However, in the current real estate market, many properties cannot
be sold for the amount owed against them. It is possible to persuade lenders to take
less than the full amount owed if the lender believes that it will make more money
through a short sale than through a foreclosure.
How long does it take to close a short sale?
This is totally up to the lender. Some lenders take as little as two weeks, some over
six months. The only way to know is to start the process. The key is making sure that
your short sale package is complete, and that you follow up daily with the lender.
I want to do a short sale and have a 2nd mortgage,
does this make me ineligible?
No. Both of your lenders will need to be satisfi ed in some way to complete the short
sale. If your fi rst lender will be paid off by the sale, then you just negotiate the terms
with the second lender.
Will a short sale destroy my credit?
Yes and no. The short sale may not show up on your credit. In fact, most mortgage trade lines report â€œMortgage Paidâ€ after a short sale. Any late payment history will still appear, as will any Notice of Default fi lings. What wonâ€™t report is an actual foreclosure. A promissory note may prevent the lender from reporting the mortgage as a loss. In todayâ€™s credit market, a foreclosure may prevent you from obtaining a mortgage for at least 5 years, longer than a bankruptcy.
What is a Hardship?
Some examples of a hardship include:
â€¢ Reduced income or unemployment.
â€¢ Inability to work due to health reasons.
â€¢ Separation or divorce.
â€¢ Medical bills.
â€¢ Business failure.
â€¢ Death of a spouse.
â€¢ Adjustment in mortgage payment or
unforeseen increase in your monthly expenses.
â€¢ Any other circumstance that cripples your ability to repay your mortgage.
What is the effect of short sale on the seller?
The sellerâ€™s debt is cleared. Some lenders may mark the transaction as a settlement, which will hurt the sellerâ€™s credit score.
Are there tax implications in short sales?
Much like the issue of credit reporting, the circumstances are individual to the lender. As a short sale represents a loss for the lender, they can report the amount lost a debt forgiveness to the seller. If a formal tax form 1099 is filed, the seller may be responsible for paying taxes on the amount
of debt forgiveness. As of Jan. 1,2011 there are no tax implications on the first loan. Verify with your lender.
Can investment properties be short sold?
Most defi nitely. Any type of property can be sold through a short sale.
David Cooper. Las Vegas Foreclosure Houses. FReee List. +1-7024997037
email@example.com Not a Real Estate Agent. Investor in Single Family Homes.
That is why this Real estate market will fall in the next few years there is still Garbage out there. Sorry to hear your problem but maybe a second job . Good luck but you can start with the Bank they are the one who will help you out on your loan.
Just an idea ...
You may be in a difficult situation there because the first priority is financial hardship, over and above anything else. So if you are able to work with the Lender be prepared to make a cash contribution. There is more information available on my website http://LQRealtor.com or you can get help when you owe more than your home is worth at the attached link.
If the short sale is not a viable alternative for you, consider discussing a Deed-in-Lieu of Foreclosure with the Lender. This is a graceful way of stepping away from the property without the stigma of foreclosure. Best of luck!
This question, although rarely asked publically on this venue, is a quite common one for real estate agents that are marketing heavily to distressed homeowners. I noticed you mention you have 2 loans. In California, we are a non-recourse state, meaning that the loans, IF THEY ARE PURCHASE MONEY MORTGAGES, cannot follow you after either a short sale or a foreclosure. In the event you have refinanced that second, you will likely be on the hook, unless you can both negoitiate a payoff and get in writing from the 2nd that they will not pursue the deficiency. Also, through 2012, you will not be liable to the IRS after you receive a 1099C cancellation of debt, from one or both lenders. Read about The Mortgage Forgiveness Debt Relief Act and Debt Cancellation at the IRS site: http://www.irs.gov/individuals/article/0,,id=179414,00.html Because you are asking this question, I suspect that there truly is a hardship, over and above what you are stating here. Our team specializes in assisting (sometimes current) homeowners obtain a reconvyance on an upside-down mortgage. Keep doing the research, as you are doing, and you will discover the key to your housing dilemna. Good luck and thank you for reaching out for help! Be sure to contact the appropriate tax and legal professionals along the way.
Financial Hardship â€“ There is a situation causing you to have trouble affording your mortgage.
Monthly Income Shortfall â€“ In other words: "You have more month than money." A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
Insolvency â€“ The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.
This seems simple enough, but it is a complicated process that takes the expertise of experienced professionals. There is many reasons that can fall in the above three catergories.
If you could afford it before and there has been no change of job, I suggest to continue to pay your mortgage. It's what you signed up for, I understand how you feel about being upside down, but real estate is a long term investment, hang on to it and one day it will be worth more again and at that time you may be able to get positive cash flow on it, your credit will not be effected by a short sale. Good luck, you will make the right decision.
Las Vegas NV
If you sat down and put your financials on paper i would guess that you are close to using 101% of your income, if that isn't financial hardship i don't know what is. There are tons of great realtors who specialize in helping clients in your situation. If you need me to refer you one i would be happy to I am a member of 1000+ agents who deal primarily with short sales.
Here is a blog i did on Budgeting. Has a helpful chart with guidelines as to what % of $$ should go to Mortgage, food, car, utilities, ect..
Best of luck to you, feel free to email me if you are not able to find an agent who can help you.
If you are turned down on a re-fi, you might try a modification. The good news is rates are better these days and they're down this week. Rates are so low, in fact, it's like they're giving money away.
Banks have been very reluctant to make principal reductions for people who can afford to pay their mortgages but are upside down.
Tough it out for a while.
Look at it this way: You have a roof over your head. You're not looking at a rent increase. You're paying into an investment that was not timed well. So what. I'm in company with others who took note of the fact you put no money down. There are plenty of Californians who put a huge chunk of their money and lives into their home. These people will be anxiety ridden while all the problem loans are cleared out - a process that will take years. But they're determined to make good on their mortgage.
Also: You leveraged something you have no stake in. Now you want a break ... because ...?
California real estate might have been one of the better investments of the last century. Year after year, it paid and paid well. The perception was all you had to do is get on the train. I personally know people who became millionaires by virtue of the fact they bought a home there. But there was never a guarantee you could sell a few years later and cash out with a profit.
It's just a paper loss until the day you sell. If you sell, then you're a loser. (The only cure for that is to buy again right away in the same market.)
There is a saying: You pay your dues and take your chances. You didn't even pay for your ticket. Now you want to get off because the gravy train stopped? It's a train! It makes stops!
There are many reasons for hardship, please check my blog at http://RealEstateByGraham for lots of information on short sales
However, the hardship letter is not the only thing we need, and its function in a short sale transaction is just as part of the document some lender need. Whether they are reading them and judging from it is questionable.
The issue we need to consider with every decision we made are the consequences. e.g Credit scores, Taxation, and your future home, your career. Some losses can not be evaluated by money. Moxa
If you are able to make the payment on the condo without difficulty or as easy as you always have since the purchase of the home then the lender will ask you why you are attempting a modification. Be prepared to answer with a viable reason other than you are upside down in your equity. The banks will believe that you are attempting a "strategic default" and will decline your request.
Diane Wheatley, Broker
Before you eagerly climb aboard the short sale bandwagon, consider the following to determine whether you may qualify for a short sale. If you cannot answer yes to all four requirements, you may not qualify for a short sale.
The Home's Market Value Has Dropped.
Hard comparable sales must substantiate that the home is worth less than the unpaid balance due the lender. This unpaid balance may include a prepayment penalty.
The Mortgage is in or Near Default Status.
It used to be that lenders would not consider a short sale if the payments were current, but that is no longer the case. Realizing that other factors contribute to a potential default, many lenders are eager to head off future problems at the pass.
The Seller Has Fallen on Hard Times.
The seller must submit a letter of hardship that explains why the seller can not pay the difference due upon sale, including why the seller has or will stop making the monthly payments.
A few examples that do NOT constitute a hardship are:
Bad purchase decisions. Blowing your paycheck on a home theater system with surround sound does not qualify as a hardship.
Unhappy with the neighbors. Even if every home on your block has turned into pot growing houses, that will not qualify as a hardship.
Buying another home. The lender will not care if you have decided the home is no longer suitable for you or your family.
Pregnancy. Increasing the size of your family or starting a family is not considered a hardship.
Moving into an apartment. If you decide to move out of your home, that is a lifestyle decision and not a very good reason to abandon your home.
Examples of hardship are:
Medical emergency / sudden illness
Please call us directly to discuss your specific situation. Our services are FREE to homeowners. We look forward to hearing from you.
Eli Givoni, Director
Short Sale Department, LLC
Serving all 50 states
And a lender can decide to give it for any reason.
Do you need to move, is there a change in family circumstances, is a hardship imminent? Are the payments unaffordable? What I'm getting at is that there are other factors that your lender might probably consider. Not every lender is the same. Most people are forcing the issue of hardship down the bank's throat by not making payments, but you don't have to do that. I just completed a short sale where the owner only missed one partial payment at the very end. The lender could see that default was probable anyway given how upside down they were so they agreed to it.
A bank is generally not going to encourage you to do a short sale -- they have a lot of other pots boiling. You can also attempt to do a short sale through the HAMP program and not miss any payments. Even if you don't qualify for a HAMP loan mod you may be "HAMP eligible" in the sense that you can request relief through HAFA which can allow a short sale or a deed in lieu of foreclosure - but you have to go through the HAMP process to get there first. There are options out there. Be honest and up front about your situation with the bank, but also be persistent. Always consult with a qualified attorney and a tax professional on the decision to do a short sale.
From my recent blog post. For a short sale, the owner must prove the following:
1.) The owner must have a negative debt to income balance. Simply stated, the home ownerâ€™s income is not enough to pay their monthly bills. There are many reasons why monthly incomes change. Job loss, reduction in hours/salary, disability, and death.
2.) The owner must be insolvent. Meaning the home owner does not have any assets that can be sold to supplement their income or pay off the debt. This does not include retirement funds but there have been cases where the lender asked for the owner to pay some money at closing and this is the only place an owner can withdraw funds.
3.) There must be a documented hardship. The owner must be able to demonstrate that something has changed preventing them from being able to afford the home. There are many reasons for hardship. Common reasons are job loss, health issues, and divorce. Adjusting interest rates which increase the mortgage payment suddenly can also be a reason for a short sale hardship.