Which one is lesser evil, foreclosures or short sales ?

Asked by Norma, Sacramento, CA Fri Nov 7, 2008

I stopped paying 1st and 2nd mortgage on my rental property in Sacramento, Ca. went into foreclosure recorded Aug 2008. A company contacted me and persuaded me to do short sale on the property. I am in a dilemma, what is better for me in all aspects, shortsale or foreclosure?

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Get-smart, , Durham, NC
Sun Apr 26, 2009
It depends on what your goals are. A short sale isn't as bad as a foreclosure and lenders like Freddie Mac will lend to faster than if you let your house go to foreclosure. Plus with a short sale you have the strength to negotiate a judgment or a 1099. In a short sale most lenders will agree to issue a 1099 that can be wiped away with the right accountant.
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Debby Thomps…, Agent, Wauwatosa, WI
Wed Jan 7, 2009
The problem you have is that you have both a first and second mortgage on your home. It is harder to get a short sale through both. I would try a short sale until they do the final sale under foreclosure. You would have to agree to the terms of the short sale for it to go through. Also the banks will have to agree. I would talk with a lawyer and your accountant to find out what is best for you.
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Lynn Bowen, Agent, Sebastopol, CA
Sat Dec 27, 2008
First I would like to say Norma I feel for you in your predicament. From my recent learnings regarding short sales I am thinking that your situation would not qualify for a short sale because it is a rental property . I believe that in most cases to qualify the existing mortgage needs to be the orignial mortgage used to acquire the property i.e. not a refi and at the same time the property needs to be owner occupied not an investment property. I would contact your mortgage holder & talk to them directly about whether or not they would consider a short sale. Most lenders won't discuss this unless you go to them with an offer from a buyer. It does sound like you may be running low on time which is another reason to contact the lender. DEFINATELY DO NOT PAY ANYONE TO SUPPOSEDLY HELP YOU THRU A SHORT SALE PROCESS. Also the previous advise to seek advise from a real estate attornery or a CPA is right on. Good luck to you.
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Isaac Bensus…, , 92037
Sat Dec 27, 2008
Erin's advice covers almost everything. I believe that your particular scenario is even harder because this is an investment property and you have a second mortgage. You definitely have to contact a Real Estate Attorney or a CPA.

As Erin mentioned, I don't think that you have the time to do a short sale. If your property went into foreclosure August 2008, it is probably too late. Also, do not pay any fees in advance to a short sale or loan modification company. It would be a waste of money and probably not legal.
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Nathan, Home Buyer, Fresno, CA
Sat Dec 27, 2008
The Sacramento Bee. “Ruben Ramos, owner of a Marysville real estate office, got attention in real estate circles this week after explaining in Sunday’s Bee how he encourages troubled borrowers to walk away from their homes. His comments – during a real estate round table with three other panelists – went off like a bomb in an industry that constantly tells people to hang in and try to save their homes.”

“‘It’s not the right thing to do. I wonder if this is what we want taught in our colleges, to defraud lenders,’ said retired Sacramento homeowner John Lewis.”

“Leigh Rutledge, a Sacramento real estate agent, said, ‘There was part of me that thought The Bee shouldn’t have printed it. The other part is that as a Realtor I’m incensed that this guy … that this is what people think of us. It’s not how most Realtors feel.’”

“No apologies, says Ramos. ‘If people don’t think it’s a reality, they better wake up.’”

“To be fair to Ramos, another dialogue on the topic was edited out for space. He talked about working first with banks to get loan modifications. If the bank is willing, give it a try, he said. If not, leave.

‘If I see that the modification only benefits the lender by keeping that borrower on the hook and slamming the door harder in their face two or three years further down the road, I’m going to be the first one to say, ‘Walk away.’”
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Erin Stumpf…, Agent, Sacramento, CA
Sat Nov 8, 2008
That is truly the million dollar queston. If your notice of default was recorded in August of this year, the clock is ticking down to the date of the Trustee Sale. If you are just now trying to decide if doing a short sale is the right option for you, it may be too late to have the luxury of a decision between the two.

You really should consult an attorney or CPA to help you make your decision, if you still have time to make one. Without knowing several details it is impossible for anyone to advise you one way or the other. Do you have a purchase money loan, or have you refinanced? Are you "financially insolvent?" What does the rest of your credit scenario look like? If you need a referral to an attorney or CPA, ask your agent, or you can shoot me an email.
Web Reference:  http://www.erinattardi.com
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Chantelle Ma…, , Bozeman, MT
Fri Nov 7, 2008
Short sales are probably better for your credit and I believe that there is a rule that you won't have to pay income taxes on the banks losses from a short sale. Another option to look into is deed in leiu of foreclosure, but I think you have to have the property listed for a certain amount of time before the bank will consider that. That saves foreclosure and short sale problems and is less expensive for the bank to handle, so sometimes is a better option for both parties. Be careful of companies that say they are going to help you negotiate with your bank and ask for money up front. Call the Hope Now Alliance if you want to explore options. They offer free services and are VERY helpful and kind.
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