Anybody know the requirements to doing a short sale? (Palm Bay: short sales, real estate)

[FloridaMD]

I have been wanting to move out of Central Florida (live in Brevard County/Palm Bay). Unfortunately I bought my house at the peak, and I had put a good chunk of money down on my house, but despite that, I believe I am probably STILL upside down on my mortgage substantially. I checked the comps in the area, but I may owe as much as 100K more than my house is worth now.
I really don't want to walk away from the place and take the hit to my credit, but I also have been wanting to move out of state for the last 2 years but haven't tried because of the plummeting housing market and lack of buyers. I have a job opportunity come up out of state (my local job is safe however, just looking for a change). I want to know if doing a short sale is an option. Anybody know what the requirements are? Do you have to prove financial hardship to be able to get this? If I were to move to another state, I guess it's possible that I COULD afford to keep paying my mortgage and rent on another place (but that would make life very difficult with no room for any discretionary spending), so does that mean I wouldn't be able to short sale? Am I basically stuck? Any advice is appreciated. Just don't know who to ask about these things.

[annerk]

Could you rent the place here and buy a small place out of state until the market improves here?

[aneftp]

Originally Posted by FloridaMD

I have been wanting to move out of Central Florida (live in Brevard County/Palm Bay). Unfortunately I bought my house at the peak, and I had put a good chunk of money down on my house, but despite that, I believe I am probably STILL upside down on my mortgage substantially. I checked the comps in the area, but I may owe as much as 100K more than my house is worth now.
I really don't want to walk away from the place and take the hit to my credit, but I also have been wanting to move out of state for the last 2 years but haven't tried because of the plummeting housing market and lack of buyers. I have a job opportunity come up out of state (my local job is safe however, just looking for a change). I want to know if doing a short sale is an option. Anybody know what the requirements are? Do you have to prove financial hardship to be able to get this? If I were to move to another state, I guess it's possible that I COULD afford to keep paying my mortgage and rent on another place (but that would make life very difficult with no room for any discretionary spending), so does that mean I wouldn't be able to short sale? Am I basically stuck? Any advice is appreciated. Just don't know who to ask about these things.

This a good site to read on "short sales"

Qualifying for Short Sales - How to Qualify for a Short Sale

Unfortuantely, if you are gainfully employed, (HAVE assets and income) but just want to get out, YOU DO NOT QUALIFY.

You have to prove that you are going through hard times, have no assets, have no income.

Unfortunately for a lot of upper middle income/high earners, you have 2 options
1. pay up (A lot of my friends purchased at peak and are taking 100-200K hits on their house and Paying it). Uncle Obama isn't helping the upper middle class/upper class.
2. rent it out and lose some money each month but that lessens the initial financial hit.

3. Not really even an option. If you are a high earner, Florida laws say a mortgage lender can issue you a deficiency judgement for at least 10 years. They can go after your assets. If they know what you do for a living (doctor/lawyer etc) and know you have viable income, I would not foreclose on the home.

It's sad but in these times, the upper middle/upper class take the biggest hit. It's called wealth redistribution. The lower economic class essentially can "walk away" (still have bad credit) but the banks will not go after their assets. But if you have assets, the banks will go after you once they find out your profession.

[annerk]

Originally Posted by aneftp

This a good site to read on "short sales"

Qualifying for Short Sales - How to Qualify for a Short Sale

Unfortuantely, if you are gainfully employed, (HAVE assets and income) but just want to get out, YOU DO NOT QUALIFY.

You have to prove that you are going through hard times, have no assets, have no income.

This is not the case at all. A home in my neighborhood jsut sold as a short sale. ($380K short!) The sellers were a couple who owned another home that had some equity. They were both employed. They were going through a divorce, but were still legally married. Personally I'm not thrilled about the short sale being allowed, as they created the problem on thier own by buying a house with 100% financing at the top of the market and then being allowed to walk away. I think that there should be tax liabilities for short sales. The difference should be treated for what it is, a capital gain. Ah well, Im' going to use the selling price to fight my tax assessment.

[aneftp]

Originally Posted by annerk

This is not the case at all. A home in my neighborhood jsut sold as a short sale. ($380K short!) The sellers were a couple who owned another home that had some equity. They were both employed. They were going through a divorce, but were still legally married. Personally I'm not thrilled about the short sale being allowed, as they created the problem on thier own by buying a house with 100% financing at the top of the market and then being allowed to walk away. I think that there should be tax liabilities for short sales. The difference should be treated for what it is, a capital gain. Ah well, Im' going to use the selling price to fight my tax assessment.

The key word is "going through a divorce"

A divorce meets one of the "financial hardships" Sure the OP can get a divorce and meet one of those requirements. I'm not sure if the OP is going through a divorce or has medical hardships.

Examples of hardship are:
Unemployment
Divorce
Medical emergency / sudden illness
Bankruptcy
Death

But judging from the tone of the OP, he/she looks like they have some assets, have a stable job, and had the ability to put down a sizeable downpayment.

The OP looks like they are just frustrated with Florida and wants to move out. They have not lost their job. The OP's title is "FloridaMD" I assume the MD stands for medical doctor or from he/she is from the state of Maryland. MD could stand for "macdaddy". Don't know. But the banks will want to look at his tax statements and bank assets. It's not easy for people who are higher earners to walk away.

[annerk]

Like I said, the sellers had another home, both were employed. The divorce should have made a darn bit of difference. They walked away from an obligation that they COULD afford to carry until it was sold, but chose not to.

[aneftp]

Originally Posted by annerk

Like I said, the sellers had another home, both were employed. The divorce should have made a darn bit of difference. They walked away from an obligation that they COULD afford to carry until it was sold, but chose not to.

I don't think you really understand.

Let me clarify.

Most of the "short sellers" have no money. That means they do not have 100-200K in the bank in savings/retirement accounts/liquid stock investments. You can have a stable job but have no money to cover the underwater mortgage. That's all the bank in question really cares about. There are way too many people in this country living beyond their means. In my neighborhood in Heathrow, FL, I see so many people driving BMW 650 convertibles, lexus LS, etc. I'd gotten to know some of my neighbors wells and the majority of them have financed their cars. I buy my cars in cash. That's what I mean by people having no money and spending it all. It doesn't matter that they earn 200-300k a year. If they are spending it all, than they are insolvement by the bank's definition.

There are other sellers (like my affluent friends) who have more than 1 million in reserves who are "underwater in their mortgage" They cannot walk away from their loan obligations (in most states...depending on the state laws about recourse and non-recourse loans)

The banks want to look at your tax returns. Say my previous 2 years tax returns show that I made over 350K AGI.

It also shows that I I made a 90K profit on investment returns. And my current bank account shows that I have 125K in savings/CD's. And I earn 40K a month.

I come to the bank and tell them I want a short sale. There's no way they would let me do a short sell. They say I would too much money.

The people who "walked away/short sell" from one of their mortgages, and still kept their other home. You do not know their financial situation. Neither do I. Many people are living way beyond their means and spend every last penny. If those sellers did a short sale, who's telling that they spent everything they had and have zero savings. They can than easily go to the bank and say they have no money. You have to show the banks the last 6 bank statements where your assets are (that way, the bank knows you aren't trying to shift money away). These sellers you are talking about probably have no real savings. They can have stable jobs. The can afford both mortgages. But the banks look at the bottom line. Do these people have assets to cover THAT mortgage they are dealing with (the mortgage the bank owns...not the other mortgage on the other home).

What this market is rewarding is bad behavior. I'd be willing to bet those short sellers have less than 10-20K in living reserves. If I were a bank, I would approve of that short sale. You can't squeeze blood from stone with those sellers. (if the sellers have so little cash left, there's no point in forcing them to liquidate their savings).

The million dollar question, is how much equity do they even have on their other home. Who's to say, they aren't underwater on that home also. Many people did zero down, interest only on 2-3 homes. I know my realtor very well, and she tells me, so many people have negative equity on multiple homes. They "choose to stay in the home" that has dropped the least amount. So they purchased on home in 2005 (and it's value has dropped 100K). The homeowners got greedy and purchased another home in 2007 (that home has droppe 50K). The homeowners did zero down on both home. The homeowners would get the short sale of the home that has dropped 100K that was purchased in 2005. they kept the home that was purchased in 2007 since it dropped the least but they have zero equity in that home also.

On the other hand, if you have assets, the banks will want to know about it and it's considered fraud if they find out you really have money to cover the losses.

(EDIT)
And just to add, you mentioned the sellers had another home with "some equity". Well most of that equity is probably gone if you include 5-6% real estate commission that it takes to sale that home.

[annerk]

Originally Posted by aneftp

I don't think you really understand.

Let me clarify.

Most of the "short sellers" have no money. That means they do not have 100-200K in the bank in savings/retirement accounts/liquid stock investments. You can have a stable job but have no money to cover the underwater mortgage. That's all the bank in question really cares about. There are way too many people in this country living beyond their means. In my neighborhood in Heathrow, FL, I see so many people driving BMW 650 convertibles, lexus LS, etc. I'd gotten to know some of my neighbors wells and the majority of them have financed their cars. I buy my cars in cash. That's what I mean by people having no money and spending it all. It doesn't matter that they earn 200-300k a year. If they are spending it all, than they are insolvement by the bank's definition.

There are other sellers (like my affluent friends) who have more than 1 million in reserves who are "underwater in their mortgage" They cannot walk away from their loan obligations (in most states...depending on the state laws about recourse and non-recourse loans)

The banks want to look at your tax returns. Say my previous 2 years tax returns show that I made over 350K AGI.

It also shows that I I made a 90K profit on investment returns. And my current bank account shows that I have 125K in savings/CD's. And I earn 40K a month.

I come to the bank and tell them I want a short sale. There's no way they would let me do a short sell. They say I would too much money.

The people who "walked away/short sell" from one of their mortgages, and still kept their other home. You do not know their financial situation. Neither do I. Many people are living way beyond their means and spend every last penny. If those sellers did a short sale, who's telling that they spent everything they had and have zero savings. They can than easily go to the bank and say they have no money. You have to show the banks the last 6 bank statements where your assets are (that way, the bank knows you aren't trying to shift money away). These sellers you are talking about probably have no real savings. They can have stable jobs. The can afford both mortgages. But the banks look at the bottom line. Do these people have assets to cover THAT mortgage they are dealing with (the mortgage the bank owns...not the other mortgage on the other home).

What this market is rewarding is bad behavior. I'd be willing to bet those short sellers have less than 10-20K in living reserves. If I were a bank, I would approve of that short sale. You can't squeeze blood from stone with those sellers. (if the sellers have so little cash left, there's no point in forcing them to liquidate their savings).

The million dollar question, is how much equity do they even have on their other home. Who's to say, they aren't underwater on that home also. Many people did zero down, interest only on 2-3 homes. I know my realtor very well, and she tells me, so many people have negative equity on multiple homes. They "choose to stay in the home" that has dropped the least amount. So they purchased on home in 2005 (and it's value has dropped 100K). The homeowners got greedy and purchased another home in 2007 (that home has droppe 50K). The homeowners did zero down on both home. The homeowners would get the short sale of the home that has dropped 100K that was purchased in 2005. they kept the home that was purchased in 2007 since it dropped the least but they have zero equity in that home also.

On the other hand, if you have assets, the banks will want to know about it and it's considered fraud if they find out you really have money to cover the losses.

(EDIT)
And just to add, you mentioned the sellers had another home with "some equity". Well most of that equity is probably gone if you include 5-6% real estate commission that it takes to sale that home.

They aren't underwater on their other home. Bought it in 2001--public records show no additional loans/liens since the original note which was a 20% down 30 year fixed. It's currently (realistically) worth at least $75K more than they paid for it, not taking into account the eight years of payments they've made on it and original downpayment. Real estate fees would be about $15K.

Like I said, they walked away from their obligation with no penalty other than a hit to their credit. Anyone who sells a home through short sale needs to be taxed as if they had capital gains, even if that means they have a tax liability for the rest of their damn life. And if they short or foreclose on an FHA or VA loan (ie tax dollars) they should be precluded from EVER taking a government backed loan again.

[FloridaMD]

Originally Posted by annerk

Could you rent the place here and buy a small place out of state until the market improves here?

I am quite weary about doing this. I have seen more than my fair share of problem renters in the Palm Bay area. Many of them unfortunately trash the house, property, not to mention just stop paying their rent, and the ordeal you have to go through to evict them, and the nasty vandalism they might leave behind if forced to vacate. If I am all the way across country, it would be hard for me to stop by and check on the condition of the place either. I would rather just rid myself of the place altogether.

[aneftp]

Originally Posted by annerk

They aren't underwater on their other home. Bought it in 2001--public records show no additional loans/liens since the original note which was a 20% down 30 year fixed. It's currently (realistically) worth at least $75K more than they paid for it, not taking into account the eight years of payments they've made on it and original downpayment. Real estate fees would be about $15K.

Like I said, they walked away from their obligation with no penalty other than a hit to their credit. Anyone who sells a home through short sale needs to be taxed as if they had capital gains, even if that means they have a tax liability for the rest of their damn life. And if they short or foreclose on an FHA or VA loan (ie tax dollars) they should be precluded from EVER taking a government backed loan again.

Is this Florida you are talking about? I believe it's very hard for creditors to put a lien on a home in Florida that is considered the "primary" residence. Those people could have easily said that the home they were keeping was their primary residence. (Think OJ SIMPSON murder trial/civil judgement of 33 millions). OJ claimed his primary residence in Florida and there was nothing the Goldman's could do about his Florida homsteaded primary home. That's why the creditors can't force the sale of the other home since those sellers considered it their primary home.

It is my understanding that in Florida, the debtors primary residence is protected and creditors may not levy said property. Keep in mind, for a debtor to qualify for homestead protection, they must be a permanent Florida resident. (which those sellers probably were anyways)

But either way, I agree with you that "short sales" need to be taxed and people need to be more responsible. But Congress passed the bill at the end of 2007 essentially "forgiving the difference in short sales" and not making it a taxable event until I believe 2013 in order to allieviate the housing crisis. That's why short sales are so popular these days. Homeowners can essentially "walk away" without any tax consequences (a la a 1099 form given by the bank at the end of the year for the difference owed). Sure they get a big hit on their credit report. But honestly, if people had another home they owned, they would just stay there for a few years and they are in no position to buy another home in the near future. Plus housing prices will either go down or stay flat for the next 3-5 years. So when those people's credit returns to normal, they are ready to re-buy a similar home for about the same price. So it's a win win situation for the short sellers in this current market environment. The taxpayers and responsible homeowner pay the price (whether it be in reduced home values, so the Federal government helping out homeowners with Federal tax dollars)

For the OP, Palm Bay is a very dangerous/unstable housing market. I know he/she probably knows this already. It's a tough situation. I would do a lot of financial planning to protect whatever assets you have. It may take 6-12 months of planning and you may consider (it's you are 200-300K underwater) just to walk or short sale. Take a lower paying job for a while. Make it look like you are poor.

I know one of my friends who has made an average of 800K over the past 5 years, tank his "salary" down to 120K (yeah, he is a medical doctor). He's planning the escape from his home that has depreciated by 400K in value (he already going to lose the 100K his put into it). But he's stashing his money and transferring assets into a trust. He'll be ready to short sale/foreclosure within 8 months. You have to do a lot of planning if you make a lot of money.