Stop! Negotiations with the bank are your best bet. Doing a short sale can hurt you in more than one way. First you better make sure no one told a fib on the loan application. If so you could go to jail for fraud. To get a short sale one of the first things a bank will ask for is your income and exspenses and a copy of your tax return. If your tax return does not match the income stated on the application for the loan, it could be fraud. So watch out. Also if you are in a non recourse state you will not owe anything back unless it is a home equity line of credit. This home equity line of credit could end up in a IOU being owed to the bank and they can detach wages, seize bank accounts and more. It is not always the best way out. I would have to know all the details to give you the best way out. Negotiate with bank first, try to refi, sell the place or last resort file for bankruptcy. If there is equity in the home you may get some out. If the bank takes back the home you get 0 of any equity in the home.
If your in CA. email me and I can help
David Rivas

If your son-in-law has a relationship with his banker or lender, they should sit down and discuss his individual financial situation before jumping to a short sale recommendation. Even if he owes more than the house is worth, finding a way to bring the difference to the table when he sells the home is the most ideal. Any time you are late on your mortgage, even for 1 month, it affects your credit score negatively. He is right, however - the bank won't even consider a short sale unless the borrower has been late more than 2 mohths in a row. Short sales mean the bank loses, too - just not as much as in a foreclosure.

Either way, a default or a bankruptcy are not good for your credit rating.

Rosie
There are a couple of steps in between being current on your mortgage and selling the property. You can read my four part blog on the details below, but here are the high points:
1. Most lenders would rather your son-in-law stay in the home than sell it, if that is what he wants to do. In most cases the first step is to explain to the lender that your son's personal situation has changed and that he needs to have the loan payments lowered in order to keep the house. Writing a letter explaining how at one time he was qualified to own the house and make payments, and now he cannot make the payments, is really important. The death of a wife would probably qualify.

2. If the lender will not modify the loan terms to make the payments affordable, then talking with a Realtor that has short sale experience is a must. In order to qualify for a short sale ( in most cases,. but not all) the owner needs to be totally broke. No 401K, no savings, no assets, etc. If there is going to be a short sale, and your son-in-law has any of these assets, then he is going to be expected of help with the short sale.

3. I am not aware of any legal reason that your son needs to be late for three months to qualify. However, know that in all likelihood your son-in-law's credit will be pretty trashed if he is able to conduct a short sale. Not as bad as a foreclosure, but bad. One of the Realtor's jobs is to make sure that if the house is sold short, that the result is that the loan is marked "setteld" or "paid in full". There are people that soid short and then on top of that on the credit report it states 'foreclosure", which is incorecct.

if he's current on his payments, the bank won't talk to him about a short sale or a foreclosure. Yes, if he's not making payments and he doesn't get a buyer quickly, the home will go into foreclosure. yes, it will mess up his credit. The only other option is to bring the difference to the table.

There are only a few agents who TRULY know how to handle short sales. There are a lot of agents who think that they do because they took a short course (if they were lucky it lasted a whole day) that "told" them what to do and maybe they have done one textbook case. Call Lou Campbell. He's in St Louis, but he's done a lot of them and he knows what he's doing. You can reach him at 314-229-2929

I have heard of this before, so it's not too crazy, but I certainly wouldn't advise it. In reality, if your son-in-law needs the bank to take a short sale, it's going to hurt his credit score no matter what.

My advice is to find a real estate agent in your area who has handled short sales in the past and to get the home on the market right away, even without short sale approval. The agent will list the home at a price it will sell for and let the showing agents know that this home is a short sale and he or she will be in communication with the bank in the meantime trying to get the short sale approved. Having the home on the market is helpful to the bank so that when you get an offer, the agent can present the offer to bank and ask them to take it. Buyers who are purchasing a short sale should be counseled by their buyer's agent that it will take some time (weeks or even months) to get bank approval.

Your son-in-law could definitely declare bankruptcy, and that would require hiring a lawyer.

If your son-in-law is looking for a way out of the home without hurting his credit score, you could have him go to his local bank or credit union and apply for a signature loan to make up the difference of what he owes on the house and what he actually sells it for. This route requires that his credit is in good standing right now though.