Why would I consider Short Selling my home. Some say it will not impact my credit as badly, but I am told from 2 of the credit reporting agencies

Asked by John Adler, Dana Point, CA Sun Dec 13, 2009

that it actually is the same as a foreclosure in terms of the impact!
Is this true and please provide a real example of a client of yours!
Please do not generalize with just a hypothetical.
I asked for a modification and my credit score went from the 800's to the 600's.
And to make it worse the lowered the interest rate to 2% but tacked the additional 5% to the backend with penalty!
I have made every payment they have requested and I have never been late on any debt payments I have!
Will the bank consider a Short Sale if i have made all the payments or should I just stop.
My home is worth $100K less than I owe and to top it off read below.
Also, I am having an issue with my homeowners association.
My exterior wall has a large crack.
My association refuses to provide me with a geo report they have and also will not fix the problem.
Should I hire an attorney.
I have damages because the damage will effect my sale.

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Thom Colby, Agent, Irvine, CA
Sun Dec 13, 2009
John -

You are asking a lot of questions ... but that's good. You will get answers to some but not all of your questions on this site because many of us will not put certain things in writing. I'll address some of your questions - hopefully I'm clear on what I understand from your post....

1) You've already done a Loan Mod - Obviously you were having difficulty and the lender worked with you to reduce your payment to something you could now afford. It sounds like they reduced your rate by 2%, likely made no reduction to your UPB (unpaid principal balance), and tacked on a 5% penalty at the end. So now you actually owe more than you did before. Assuming you stay in the house another 10 years, will the value increase to more than what you currently owe? - Very likely NOT, so you will be short unless you stay there until you pay the property off in 20 or 30 years which is fine for people who are never going to move.

2) You said your FICO dropped 200 points. This is a little surprising IF you were truly current on everything else. With more than 40 short sales completed successfully, I contact sellers about 6 months after closing just to check-in on how things are going. The highest FICO drop I've heard was 125 points and they were also late on several other credit cards. The majority of the others dropped about 100 points for the short sale, if they were ok otherwise.

3) I assumed you went directly to the bank for the short sale and not to a Loan Mod Company. If the bank worked with you based on what you told them you could afford, you debts, your income, etc and they agreed to it, why would they now agree to short sale the property? If your lenders are BoA/C-Wide, Chase/WaMu, or HSBC, they will not work with you on a short sale after having done a Loan Mod. In fact, they are the worst for short sales - most fail due to the 10+ month wait time to get it approved. I also assume you either a) don;t have a 2nd mortgage; b) have a 2nd mortgage with the same lender (but maybe not the same investor) or c) you have a 2nd with another lender - which is the most challenging in short sales - (getting the 2nd to cooperate).

4) If your property is ONLY upside down by $100K consider yourself lucky (is this 10%, or 50% of the value?). Most of the Short Sales I manage are $200K - $750K upside down - and I get them done!

5) As for the issues with your HOA you need to address those separartely from your financial issues. Yes, these issues may have an effect on the value of the property, but you need to address them with the HOA. Read your CC&Rs, join the Board of Directors of your HOA, attend the meetings, make sure the issues are included in the meeting minutes and talk with a RE Attorney. Pt your requests to the HOA in writing to the Board of Directors. KEEP TO THE FACTS and leave the emotion out of it - sometimes that's hard to do, but this is "business". In 2010, one of the biggest issues we will face is HOA's going into bankruptcy. So many HOAs are struggling, don't have the funds to perform maintenance, and are experiencing high ratios of residents not paying their HOA fees. I just closed a unit in Laguna Niguel - it's a 100 unit development and 76 units are not paying their HOA - that's a challange for the HOA, and for sellers.

No one other than your attorney should give you advice on whether to continue paying your mortgage or not. You received a loan from a lender which you agreed to repay under the terms of the original loan and now the modified loan. If you do not repay according to those terms, you will be in default, and the bank / banks can sell it in foreclosure. If you only have one mortgage, there are other alternatives for you.

A short sale will impact your ability to re-purchase for about 2 years, a foreclosure will have an effect of 7 - 10 years.

If you want to dicuss further, let me know.

Best of luck,

Thom Colby
Broker / REALTOR
Orange County, CA
949-887-5500 Cell-OC
562-422-4000 Cell-LA
Web Reference:  http://www.thomcolby.com
1 vote
Emily Knell, Agent, Huntington Beach, CA
Sun Dec 13, 2009
The loan modification or request for one should NOT have affected your credit score by 200pts. I think you have a case to fight the credit bureaus on that one.

On the surface loan modifications sound great, new low low rate, but yes, they do tack on penalties, late fees & any missed payments to the back end of your loan & they DO NOT reduce or permanently write down your principle balance.

If all the banks were just re-writing loans for people, no one would need to do a short sale or walk away & let it go to foreclosure. The fact is the banks do not care about you, only their bottom line, they don't want to "help" homeowners stay in their homes. They do what's best for them, low temporary rate & you keep your high loan balance.

I know you're stuck between a rock & a hard place. Still doing a short sale is better for your credit & your ability to take advantage of this down market & purchase again in just 12mos. You can't do that if it goes to foreclosure.

The short sale alone (with no missed payments) affects credit by 30-100pts, what gets it up to that higher end is whether the person is on time or late with other bills like car or credit card payments.

It's all the missed mortg. payments that starts to ding your credit more. Ultimately an actual foreclosure will hurt you the most.

One of the mortg. lenders I work with can fund a new FHA loan to a person who just a had a short sale without missing a payment, or within 12mos of any missed mortg. payments. I can't provide you with proof of client's credit scores here on Trulia, but I'm sure he'd give me some examples I can share with you Off of Trulia.

I have clients right now, we just closed escrow on their short sale and we're immediately looking for another home, my lender did a "rapid rescore" to their credit & their scores are in the 700's.

I hope you will contact me, I would like to see my lender and his team at least help you with a re-score, again that loan modification should NOT have damaged your credit by 200 points., that is not right.

As far as the HOA, they're probably not doing anything about it because they have no money, there are probably many owners in your neighborhood that are being assessed for non-payment. You could talk to an attorney about it, but I think it would be very costly to get the HOA to step up to the plate to fix it.

When you go to short sell your unit, the bank will take this issue into account when finding a value for your property, it will likely be better for you to let the new owner deal with the HOA. Yes, that sounds harsh, but if you're going to sell & NOT make any profit from the sale, why would you hire an attorney & fight the HOA, what would you get out of it?... nothing.

You could also contact the HOA & ask who their attorney is, see if you can get their phone number / fax or email, you can tell him/her what's going on & that the HOA is not being cooperative. This may save you the $$ from hiring your own attorney.

Feel free to call or email me if you have anymore questions.

562-430-3053 cell
1 vote
Keith Sorem, Agent, Glendale, CA
Mon Dec 14, 2009
You have some very good answers here.
I suggest that you have a professional geologist or structural engineer have a look at that crack. It would be more sense for you to deal with the crack and have it repaired (HOA or otherwise) otherwise it will pose problem when you sell. If the HOA is responsible, deal with that now (or simultaneously).

Dana Point has had similar settling problems in order developments.
0 votes
Erin Valovich, Agent, Laguna Niguel, CA
Sun Dec 13, 2009
Which association are you in? You have a few in Dana Point and San Clemente that are solvent with sufficient reserves to cover these types of repairs. There are also a few that are grossly mismanaged. As you may have experienced, mismanagement can severely impact property values.

I have a sold in Dana Light, Monarch Beach, and Presidential Heights- all decently managed HOAs. There are others that I am not putting out on this board that need serious consulting and reorganization.

The short will not harm you as badly as the foreclosure, particularly if you can process it out prior to an NOD being filed on the property.
0 votes
Eric Israel, Agent, Orange, CA
Sun Dec 13, 2009
Anyone telling you how many points your credit could go down is guessing. There hasn't been any strong verifiable information yet as to the difference between a short sale and a foreclosure. Yes, people say a short sale is less painful on your FICO scores. The only real reason you should be attempting to short sale your home is because you have had a hardship within your family or life. Lost your job, disability and such. Unfortunately, people are doing short sales these days just because they feel like it and don't want to pay their mortgage anymore. There is no sense in my mind for you to continue to keep paying your mortgage if you are going to do a short sale. It will take longer for you to do a short sale because you are still current and not delinquent. Banks have files stacked on their desks with homeowners who are delinquent that they cannot get too fast enough. As far as the HOA, let that go too. No sense spending good money after bad for an attorney. Again, if you are going to do a short sale, stop paying the HOA and let it go. If you have decided to let the home go, then just let it go. Eventually your lenders will either approve a short sale or they will take the property back. It is in their best interest to negotiate a short sale and be done.
0 votes
Emily Knell, Agent, Huntington Beach, CA
Sun Dec 13, 2009
As far as when you can buy a home again, if you like I can email to you the closed short sale transaction I just did for some clients & show you their pre-approval letter where they qualify for an FHA loan immediately.

It's a matter of whether or not you had to miss payments. They didn't miss any payments, so they can buy again immediately. They also started with a higher credit score, so even after my lender boosted their credit with the "rapid re-score", there scores landed in the mid 700's. What's required is a min. score of 640

If you have missed payments, or will have to because of whomever your bank is regarding the short sale (not all banks will allow a short sale without a missed payment), so long as you keep your nose clean with your other bills & rent payments for a period of 12mos., you can buy again.

You're probably hearing that it will be longer before you buy again because most lenders don't have the investors willing to fund you a new loan in just 12 mos. or immediately for that matter. This all just changed about a month ago.

I can help you with your short sale. I am currently helping sellers with short sales as far as 300miles away from where I live. I'm in Seal Beach by the way. You just need to work with someone who is staying ahead of the crowd on new regulations and new news, or else you're going to end up talking to the guy who thinks you have to wait 3yrs after a short sale to buy again & that's just not true, not anymore.

Let me know if you'd like to talk further about this.

562-430-3053 cell
0 votes
John Villaes…, , California
Sun Dec 13, 2009
The impact on your credit will be significantly less but no one can say for sure this is what your score will be after the short sale. Foreclosure is 250-300 points of your credit score and short sales are typically less than half.. You can still do a short sale, I've successfully negotiated short sales with the sellers never missing a payment. If you are interested on getting a short sale done, please contact me here: http://www.vgrouphomes.com/atj/user/AdditionalGetAction.do?p…
I have been Certified by CDPE( Certified Distressed Property Expert, http://www.cdpe.com) & PSC (Pre-foreclosure Specialist Certified, http://www.partnerfrst.com). You can rest assured with me and my team handling your short sale if will get approved, have the least repercussions on your credit and done in a timely manner.

John & Sarena Villaescusa
Keller Williams Realty
Cell: 562-818-2671
Email: Johnv@kw.com
Website: http://www.VGroupHomes.com
Web Reference:  http://www.VGroupHomes.com
0 votes
John Adler, Home Seller, Dana Point, CA
Sun Dec 13, 2009
Thank you both for your response.
Some Realtors say that you are eligible to purchase a home post Short Sale in 2 years and some say 1 year.
I am understanding that there are no clear cut answers when dealing with banks today!
I had excellent credit prior to the modification and the bank lowered my current rate but tacked the difference on the back end.
1). Home is worth less.
2). Home has a cracked exterior wall.
3). Assocaition refuses to do anything!
I probably will short sell it and move on!
0 votes
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