Home Selling in Beaufort>Question Details

Robyn, Both Buyer and Seller in Beaufort, SC

When is a short sale possible, and how does it affect one's chances for buying another home?

Asked by Robyn, Beaufort, SC Mon Aug 25, 2008

My husband and I must relocate to a different state for his new job. We have had our house on the market, in anticipation of this move, for a few months with no offers. We are considering a short sale, but is that even possible since we are current on our mortgage payments and not currently in jeopardy of foreclosure?

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There's plenty of advice on here and elsewhere about the "how-to" aspects of a short sale. But as for the second part of your question (how it affects your chances for buying another home)... Most sellers who complete a short sale are delinquent on their mortgage payments leading up to the closing. If that's the case, and you apply for a new mortgage, a short sale in your credit report will generally be treated as a major mortgage default and prevent you from getting a mortgage for quite some time. Under current Fannie Mae rules, for instance, 3 to 7 yrs must elapse after the completion date of a foreclosure; 2 to 7 yrs after a deed-in-lieu of foreclosure; and at least 2 yrs after a preforeclosure sale. Note that a preforeclosure is not necessarily the same as a short sale. Under Fannie Mae's rules, a preforeclosure assumes the borrower was delinquent in paying their mortgage, and the servicer/investor agreed to accept a lower amount to avoid the time and expense of foreclosure. A short sale, on the other hand, can refer to situations where the servicer/investor agreed to a payoff of a lower amount than is owed, even on a current mortgage, to facilitate the sale of the property to a third party. If you complete a short sale without being delinquent on that mortgage, and subsequently wish to buy a new primary residence, you may be eligible, provided the lender or servicer who completed the short sale did not enter into any agreement that obligates you to repay any associated amounts, including a deficiency judgment. Note that there is no standard reporting for a preforeclosure sale or deed-in-lieu in the credit reporting system. Lenders are responsible for reviewing the credit report, loan application, and other information to make a determination. Preforeclosure sales, for instance, may be reported as "paid in full" with a "settled for less than owed" remarks code. Lenders are required by the Agencies to report these actions on their loans, but not specifically how.
1 vote Thank Flag Link Mon Aug 25, 2008
Thanks to everyone for their input and advice. We tried to list our house for what the value is (although I realize the value of a home is only what someone will pay for it), at a price that would allow us to scrape together enough to cover closing costs, Realtor fees and the difference in the mortgage. But that hasn't worked, so we just had to drop the price. Housing is tough in this market right now; the developer in our neighborhood is now building homes for $40,000 less than when we bought two years ago. I checked into renting it out, but the property management company I spoke to didn't think we could get more than $1050 a month for it, which, after their fee, would leave us with almost $800 each month out of our pockets to make up the full mortgage payment. Just not doable in the long-term.
0 votes Thank Flag Link Tue Aug 26, 2008
Wow, some really great advice. Still say my number one choice is to Sell your home anyway you can cover the shortfall whatever it takes. Anyone who wants to argue that should not be giving advice. My number two choice was to rent, even if that created some monthly shortfall. Anyone who argues that point should not be giving advice. You can place my third fourth and fifth choices in any order that pleases you, they all suck and if, in my first answer, I did not make that clear I apoligize. Those choices are all not acceptable. And anyone who tells you they are should not be giving advice. As a lender I have been involved in 5 short sales this year that all had the investors agree to a short sale and try to slip the old "you owe me clause" into the transaction at the end. Only one of those actually closed after the seller signed and agreed to accept the short fall note the investor requested. These all were tortuous affairs taking a large amount of time to come to an unsatifactory conclusion. On the personal side I am involved in the purchase of a short sale and have been impressed with the quick response obtained from the lender by the agent. Right around 30 days that is very fast. I hope and pray investors are all getting better in their turn times. The average I have seen is 8-10 weeks to get an answer. Finally, I realized that I went far afield from your question which was "can I do a short sale with my payments being current?". I agree with those that say you can and to contact your lender for a short sale package to get the ball rolling.
0 votes Thank Flag Link Tue Aug 26, 2008
Another thing, if the bank sends you a 1099, they can't file a deficiency, as it is either one or the other, can't be both, by law.
0 votes Thank Flag Link Tue Aug 26, 2008
I don't even know where to start, I guess first, Robyn has stated it has been on the market, so she knows what the Fair Market Value is, compared to the amount owed to the bank and all the other usual fees involved in the sale of a home and that she is facing a short sale situation. As far as the deed in lieu, that is the WORST Advice, and it will ruin your credit, as it is foreclosure and the bank will probably report it as such. You just handed over the keys and said this is your problem, try that with your car when you decide you don't want it anymore, just drop it back off to the dealer or the bank, and see what the bank says,guess what, REPO. Besides the fact that if there is more then 1 mortgage it won't even take place, do you think the 2 is just going to say OK we won't get anything and we will release you from your responsibility. You will still take a huge hit on your credit with a deed in lieu, just the same as foreclosure and anybody who tells you different HAS NO CLUE and shouldn't be giving out advice. The bank, if possible, WILL NOT let you off the hook from deficiencies with a deed in lieu, same as in a foreclosure, and you WILL be held responsible if it is, plus the 1099 you receive from the bank will be much higher with the deed in lieu or foreclosure, compared to a short sale. Also your credit may say "paid in full" with a short sale, as it is all part of the negotiation, as well as the protection from deficiency judgments. The unsecured note that people speak of, usually comes from the seconds that are HELOC's, as they aren't truly seconds and are really revolving credit, so it can follow you, as the bank really gave you the credit and you really only used the house as collateral, but even if there is no collateral left, you still have a credit line and owe the money, same as with a credit card and the banks know this. On a true second that the lender will be wiped out on, they settle for a small amount now, rather then nothing later. Will they ask for a note, probably. Will you be wise to agree, no, as they are just trying to get more from you, but can you blame them?
Lastly, and this should be the first thing you do before you decide anything, speak with a lawyer and a CPA, and I don't mean the guy who does your taxes at the front of Walmart, make sure they both are truly informed on all of these topics. Good Luck and don't believe everything you read.
0 votes Thank Flag Link Tue Aug 26, 2008
Seems to me that you have gotten some very good advice in the answers below. The problem I have is that you have not given enough information to obtain any truly helpful advise. First of all how much have you been told by your real estate agent that your home is worth? How much do you owe against the home? Do you have a first and second mortgage or just a first? How much are your payments, either combined in the case of a first and second or the payment on the first if that is the only loan on the property? Now get a piece of paper and answer those questions. Get some good research going and find out what the homes in the area rent for and write that down above the figure you calculated as your total payment. Subtract you total payment from the rent you determined you can get for the house. If that number is negative that is a negative cash flow and you will need to feed it every month. If it positive great renting might work. Order a BPO to determine value. (you can use it later on your short sale if you go that way). Write that value above what you owe and subtract again. If it's negative that is what it would cost you if you sold the property. Could you afford to add that amount plus closing costs to the transaction to make it break even? If so do that. If the number is positive get a better realtor to market your property as the one you have apparently has not been showing the property at all. Best advice I can give is avoid the short sale at all costs. The lenders are coming after the sellers now in some cases and asking for an unsecured note to make up the difference. Kind a thing that could haunt you in the future if they choose to turn it into a judgement and chase you for it. Beyond that your credit will suffer and you may not even be able to rent a house when you move. Buying cars will get expensive and you might find your credit cards not being renewed. Nasty bit of business that. How about your husbands employer? How badly dor they want your husband to relocate. Many major employers have relocation services that might assist you. At bare minimum I would have him go to the HR department of his employer and explain the hardship this relocation is causing and see if he can get some assistance from them. I do not know anything about the real estate market in your area. Maybe there just aren't any buyers. If that is the case you could try a short sale but my recommendation would be a deed in lieu of foreclosure. As far as your credit goes it probably won't make much difference. If the lender(s) will do that you are off the hook for deficiencies and everything else. The lender(s) hold you harmless and you hold them harmless. Better than running a short sale out and having them ask you for a personal note for the shortfall right before it closes. Finally here it is: 1)Sell if you can anyway you can. 2) Rent if you can even if it means covering some negative cash flow. 3) Deed in lieu. 4) Short sale. 5) Keys in the door and a hearty "see ya wouldn't want to be ya" to the lender. Along the way don't forget to have your husband ask his employer for help. You can always call me if you want to talk about anything specific.
0 votes Thank Flag Link Mon Aug 25, 2008
The fact that you are still current on your mortgage is a great advantage towards selling as a short-sale. Since short-sales take 30-90 days just to get a response from a bank after an offer is submitted, this will buy you enough time to hopefully get the deal closed before the home actually goes back to the bank. Every bank is different and I would ask your bank for a short-sale package so you can get everything to them as soon as possible, as this will hold things up if you wait to submit this information if or when you do get an offer. Basically, If you can prove that you have tried and that you can no longer wait, then they most likely will try to help, but like I said, it depends on the bank. I would talk with your bank asap to get things started at least.... What about leasing your home out? There are many people that are unable to purchase, but would like to do a lease to purchase. This way, you would be like the bank and hold their financing for them until they are able to purchase..
0 votes Thank Flag Link Mon Aug 25, 2008
Yes Robyn, it is.Many people will tell you that is not, but I can assure you they are mistaken. You only have to show the bank a hardship, being relocated is definitely a hardship. Keep up on your payments and find an agent knowledgeable in the short sale process. I consider myself a short sale expert, but I don't know everything, as every bank is different, but what I do know is what the home is worth to the bank as a short sale and what its worth in a foreclosure, and that is how any agent gets them done. Remember this as well, if you are late 30 days on your mortgage, you will likely take an approximate 80 point hit and an additional approximate 40 point for a 60 day late. DON"T be late, if the agent tells you he can't do it, call another. If you have any questions about short sale themselves or what to look for in an agent, feel free to contact me. Good Luck and I have included a link to give you a little more info on short sales
Mike Ceparano
0 votes Thank Flag Link Mon Aug 25, 2008
I have been in exactly the same situation.
I would like you to consider keeping it as a rental
You are going to want to talk with a CPA about the after tax consequences. I was pretty stressed out initially, but in the long term we kept the property 18 years and made more money than we ever thought possible.

Because the property will become a deduction and an investment, you tax situation will change. Also, depending upon your situation, you may end up having to rent a condo or townhome when you move. We rented a small house, so we lost our homeowner deduction for mortgage interest and property taxes, but those deductions became business expenses, so although we couldn't afford to buy for a couple of years, we did have tax benefits from the rental.

In order to have a short sale you need to be able to prove hardship (meaning you need to be broke) and your credit will be affected, preventing you from being able to qualify to buy a home for quite a while. You might be able to talk the lender into accepting a promissory note for the short sale, but due to the expense of selling real estate (title, escrow, selling commission), it think keeping it as a rental would be the best way to go in most situations.

Talk with a Realtor about the pros and cons of income property.

good luck
0 votes Thank Flag Link Mon Aug 25, 2008
Keith Sorem, Real Estate Pro in Glendale, CA
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