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Maybe I'm confused - but if you put 20% down, then you should have roughly $32K equity? So as long as you sell the house for more than $127K,
($159K-32K), you're not going to have a short sale unless you have a couple of mortgages against it - correct?
I must have missed something.
The op indicated he/she financed with an 80/20 loan I believe. This is a type of 100% financing with a first mortgage of 80% and a second mortgage of 20%. The rate might be higher on the second, but the interest is tax deductible. It's been used as a way to avoid PMI. PMI was not tax deductible in the past. PMI is deductible on loans originated this year, but who knows how long that will last.
12 paws...a short sale is a sale requiring a negotion with the lender to clear the loan and allow the deed to transfer. We are seeing more and more due to the high foreclosure rate. Lenders agree to take less than what is owed. The avoids foreclosure which is not good for the seller or the investor.
SamIam...many financed recently with 100%-125% financing and have no real equity in the property. You are correct, with 20% down there is normally not a reason for a short sale but when properties are overmortgaged, there is extreme risk of foreclosure.
You might use your favorite search engine and type in "short sale" to find out more info.
Thanks - I just didn't see anything about a refinance or anything in the OP's note and figured I'd wandered off somewhere...it happens.
rrah, thank you as well.....I don't know, we just always do the normal stuff, so my calculations weren't factoring in any creative finance. I thought OP meant they put 20% down on the house. Please pardon!
Stupid us put 0 percent down and thought that at that time the mortgage was managable and that the price would keep going up. But with the ARM loan it has skyrocketed. We started at 1200 a month and now it is 1750 which includes taxes and insurance. Our Homeowners tripled in price down here. Thank you all for your input. We really appreciate your advice. We think we will meet with our realtor again and then with an attorney before we call the lenders. We are wondering if we would be able to buy a home (which is a lot more reasonable) in the next two years when we move back to Iowa.
If you are able to get the short sale, and you end up with the charge off, this negative information will mean less and less as the years pass. Just make sure that you have no other charge off's and you always pay all of your debts on time every time.
Best of luck, btw, since 2004 there have been lots of blogs dedicated to informing/warning people about the credit bubble. Now there are literally hundreds of them.
I'm curious what your attorney says. I've never done a short sale, but if you told the bank (for ex: that you had a buyer willing to pay $145k) therefore asking the bank to forgive $14k, I'm assuming the bank would ask for all of your money in your bank account and 401k before forgiving the money. Also, you'd want to verify with your attorney that there isn't a negative mark on your credit report because as you stated that you want to buy another house in 2 years, you definitely won't get the best rates if this shows up on your credit report.
I'm curious what your attorney says. I've never done a short sale, but if you told the bank (for ex: that you had a buyer willing to pay $145k) therefore asking the bank to forgive $14k, I'm assuming the bank would ask for all of your money in your bank account and 401k before forgiving the money. Also, you'd want to verify with your attorney that there isn't a negative mark on your credit report because as you stated that you want to buy another house in 2 years, you definitely won't get the best rates if this shows up on your credit report.
You are correct. When submitting for short sale approval, you must prove there is no cash flow or way of getting the cash. If you have a 401K or IRA with funds to clear the debt or difference, you'll have to cash it. Typically, people who get approval have no cash savings/investments, high credit card bills, and no ability to pay. Then when the short sale hits the credit report, the credit card companies prey on you to have a late and raise your rates because you are high risk.
You can finance a day out of bankruptcy but the rates are extremely high! Two years later, if your credit is perfect since the short sale, they will be higher than without it but not as bad as if you were foreclosed upon.
You are correct. When submitting for short sale approval, you must prove there is no cash flow or way of getting the cash. If you have a 401K or IRA with funds to clear the debt or difference, you'll have to cash it. Typically, people who get approval have no cash savings/investments, high credit card bills, and no ability to pay. Then when the short sale hits the credit report, the credit card companies prey on you to have a late and raise your rates because you are high risk.
You can finance a day out of bankruptcy but the rates are extremely high! Two years later, if your credit is perfect since the short sale, they will be higher than without it but not as bad as if you were foreclosed upon.
It's a catch-22.
I think we are getting ahead of ourselves here. 401Ks are IRAs can be reached by banks only if the payee volunteers. If you are prepared to be foreclosed upon the bank has no access to the retirement plans. So the payoff from the 401K is a thing the bank might like to see...but cannot enforce. So if you convince your friendly banker he is going to foreclose if he does not go for your short sale he may well buy without looting the 401K.
If it is a couple of grand...why fight? But if 10s or 100s of thousand are involved tell him to foreclose.
The difference between a deed surrender and a short sale is in the eyes of the beholder. Five years later both have a similar weight.
Get some good legal advice. They actually should have known better than to make the loan so don't feel too guilty. Greed is its own reward. On both sides.
Yes, It will look bad on your credit report. Not as bad as a foreclosure, but still not good. It usually shows as a "charge off" or "settled". At least for now anyways. I Have heard talk of the credit bureaus actually changing their regulations so a short sale will reflect as negative on the borrowers credit as a foreclosure. Anybody heard anything about this? There can be tax issues, but there are ways around that. Consult a CPA for advice. I would consult a "Short Sale help place" and anybody else who can inform you of your available options. I would also consult with the lender. In these types of situations communication is key. Moderator cut: advertising - read the rules, please
I'm a reporter working on a story about short sales. Looking to speak with real estate agents who have experience with this approach, who will be willing to speak with me about the ins and outs of this.
Thanks
The problem with short sales is the lenders are not interested in expediting the situation. Waiting 3-4 months to get a short sale approved is ludicrous. They will not approve a sale until there is an offer. How many buyer's are willing to wait 4 months to hear that the contract is approved?
Lenders should never be allowed to enforce a prepayment penalty if the house is sold.
A lot of this *mess* would have never happened if:
1. Owners could refi w/o penalty
2. No prepayment penalty allowed
3. Lenders could not charge any more than market rate on a 30 year fixed.
4. Lenders were required to offer a workout plan on loans less than 3 years old.
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Short Sale
