Keep making payments if you are able to. Communicate with your lender. Get legal advice from an organization that works with distressed homeowners. The consultation is normally free! If your credit is still good don't give up. The truth is until you default the bank is not likely to do anything and they will not bow and be nice about it typically. Banks have people with thousands of files on their desks. You will be lucky to get a call back within thirty days. Do try to reach out to your lender after talking to a lawyer. Its a political year and personal finance is on the agenda. While both parties disagree; they will pretend to have solutions to the residential mortgage crisis. If Obama gets re-elected he may try to strong arm banks into restructuring these loans.
It is a bad situation for those who bought a house, a condo, or any other real estate and now have too much debt on a property that does not support it -- even the government is reeling from these issues, Fannie Mae and Freddie Mac main players of many of these "under-water" loans, but the obligation of the loan is a commitment and a promise (to pay), and no where on that paperwork will you find anything as you've described spelled out.
Adding to the injury is the fact that lender DO NOT WANT TO HELP YOU with a modification request. I actually was present where a "big wig" of one of the Big Three mortgage lenders flat out said that they would rather entertain a short sale than a modification. Oh, and the short sale CANNOT BE BETWEEN FRIENDS or the likes.
Your obligation on paper is to comply with the terms of your loan. To apply for another with the intent of walking away (or doing a short sale on the latter), is seen harshly by any succeeding lender (if you're planning to buy).
The alternatives to this sort of situation is to buy with someone else who isn't in your situation, or to ride out the damage caused by a short sale today -- a couple of years to re-establish your credit score to the point where you can apply for and obtain a new mortgage loan.
However, there are alternatives to defaulting - including doing a Short Sale. I can vouch for Rebecca White's experience - short sale experience in San Francisco is hard to come by - it seems everyone says they have it - but an actual track record of closed sales as the listing agent is something you should ask for. Others below may have good experience and track records too - so do your homework. Just having a Short Sale listing doesn't make someone an expert, and repeated failures at Short Sales obviously doesn't either.
My strongest advice to you is to seek legal and financial counsel. You need to know the tax and legal consequences of any route you take, including the buy-an-bail strategic default. I can share referrals to legal and financial experts if you contract me directly. I'm sure Rebecca has excellent referrals as well as will anyone else who truly is a short sale expert.
Finally, whether or not it is a good idea or a bad idea is entirely up to you and what you are willing to live with. My link below includes an especially interesting, funny and sarcastic opinion on the topic. Well worth the read.
Here is a post that may address some of your questions:
Fannie Mae Punishing â€œConvenienceâ€ or â€œStrategicâ€ Defaulters: 2 Critical Actions
As you probably know, missing mortgage payments is likely to affect your credit so you will want to make your next real estate move (buy or rent) before you opt to go delinquent on your current loan. And you'll want to make sure you'll be in a home and loan you'll be happy with for a while since it'll be tough to refi or rent afterward.
Keep in mind that you'll need to qualify for the new house as if you own both. Have you spoken to a mortgage broker?
Depending on the situation, I can see why this plan is appealing because this market is a great time to trade-up or out though there are pros and cons...and won't be for everyone.
If I can help, let me know. We have successfully closed a number of short sales this year.
Now, for all those who are reading here and have posted on the "Obama thread". Why blame everything in the world on Obama, when truthfully, this is the kind of thing that goes on, that costs the banks money, and you expect them to play nice?
Fact is you are not alone in this and there are many solutions available beyond advice a Realtor can give. We are not attorneys or accountants so we can not give you advice on how to break a contract or what the tax and financial implications of different options are.
I know what you're thinking, your game and voluntary default would make me skeptical to deal with you as an agent. it is fraud and agents that value their license should be careful.
When applying for a loan, that is generally a promise to repay the loan. But if your intent is NOT to pay and bail instead, that sounds like mortgage fraud.
From FBI's Financial Crimes Report 2009.....http://www.fbi.gov/stats-services/publications/financial-cri
"Mortgage fraud schemes employ some type of material misstatement, MISREPRESENTATION OR OMISSION relating to the property or potential borrower which is relied on by an underwriter or lender to fund, purchase, or insure a loan.
Although there are many different types of schemes, mortgage fraud can be summarized as a form of bank robbery where the bank is not even aware it has been robbed until months or years later. Mortgage fraud perpetrators often obtain loans based on falsely representing the value of the collateral or their qualifications to receive the loan and steal the proceeds WITHOUT AN INTENTION OF REPAYING the borrowed funds. Lending institutions are subsequently left holding the inflated collateral and incurring significant losses."
I know that it can be done as I have done this for more than one client and will be doing it again. But there are many variables that neither of us wants to discuss publicly. IF you are serious about what you say, please contact me and I will explain and we can attempt to discover what your options are. You need advice from someone who had already done this successfully rather than from someone who hasn't.
I have references from past short sale clients. It is a daunting process but nine out of my 14 transactions so far this year are/were short sales. There are only a few of us in San Francisco who specialize in short sales. It is a dubious distinction but a niche that I serve nonetheless.
My email is RebeccaRealtor@sbcglobal.net or you may call me at 415.412.1977.
Do you have to move because you are struggling with your mortgage payments or do you want to move because a unit in your building is selling for 50% less than what you purchase your one for. I can give my opinion when I have a better understanding.
What a mess.
Here is the situation from the banking worlds perspective and they do all talk to each other in the form of credit reports. If you do a short sale you are not fulfilling the contractual promise you made to repay the money you borrowed. Banks and all other lenders donâ€™t like it when people donâ€™t do what they say they are going to do. Itâ€™s unfair when they do the same thing but life in America isnâ€™t set up for fair play for the little guy only corporations.
So if you had the bundle of cash and could qualify for the second loan on the new place the lender on the first place would likely sue you for breach of contract. See if you can pay off the first loan they pretty much want it done. If you donâ€™t they wonâ€™t lend you anymore money for a few years. You have to do financial detention for a few years and think about how irresponsible youâ€™ve been to have gotten caught up in the disaster they made.
You should talk to any of the housing counselors available and look at the ramifications of how badly youâ€™ve been damaged by this latest example of Wall Street greed. Depending on the consequences you might decide to stay and ride out the dip in prices or sell short or even do a strategic default but first get informed of your options and what will happen to your credit and your ability to borrow again.
You will not qualify for new financing based on your objective to "buy and bail". Your loan scenario will never get past underwriting. In addition ... once you stop making payments on your condo and assuming you are successful with short sale, you will have a (2) year wait period before being eligible for conventional financing (80% LTV) and (3) years for FHA. All based on lender guidelines as of this writing.
All the Best,
Challenging idea more likely.
In doing a short sale, you will be affecting your credit, so that may prevent you from qualifying for a new loan. Also, you'll have to have some money for a down payment for the new place. And, if you have any money left, the bank may not allow a short sale on your current condo.
So, the best thing to do right now, is contact a mortgage broker to see how that may be able to work out. Send an email to Natasha Lovas NLovas@gmwest.com and see what she says.
Best of luck.
Zephyr Real Estate
Thanks, Scott Bingham Beach Cities Real Estate
This could be tough to do but I have helped several clients do something along these lines already having done over a dozen short sales in the past few years.
The burden on you will be to prove financial hardship and to qualify for the new loan.
Whereas, it annoys me when people say "call me" on this forum, this is the type of thing best talked about over the phone or in person.
I do have some general short sale info on my website: http://www.ShortSaleSan Francisco.com
Rebecca White, GRI
McGUIRE Real Estate