Short Sales Question - Strategy

[laurannm]

Hi all,

I was wondering if I could get some feedback. We filed Ch 7 back in 2008, and did not reaffirm either of our mortgages. We owe $296k on our first, $120k on our 2nd, and based on my research and talking with realtors, I figure the house to be valued at around $250-$270k. The first mortgage is with Citi, and it was a 10-year interest only loan. That 10-year period ends in two years, at which point my payment will go up about $600 a month. My 2nd mortgage we stopped paying back in January of this year., and haven't heard a peep from them (nor do I expect to)

My thought was to attempt a settlement with the 2nd mortgage (First Horizon) early next year when I have sufficient funds. If that is successful, I was then thinking of talking to Citi about a short sale. Does this make sense, is there a better way to do this? Should I attempt to contact both lenders now about a short sale? Our ultimate goal is to get into something a little more affordable.

Any thoughts or suggestions are appreciated

Thanks!

[HHM]

No point in settling with the 2nd prior to the short sale, if your goal is to get out of the house, either short sell or foreclose. There really is no benefit to you doing short sale over foreclosure except that you get out of the house quicker, but by the same token, you can live in the house rent free for a very long time while the foreclosure takes place.

The 2nd mortgage will get some money out of the short sale, usually $3-5K as a token payment if the house is that underwater, don't wast money settling ahead of it, have the BUYER settle the second mortgage.

As for contacting them ahead of time, don't waste your time. There is no such thing as a "pre approved" short sale. Simply list the property, the bank won't even talk to you, in a serious way, until you have an offer.

[laurannm]

Thanks HHM, good info


Since I am 3 years post discharge, does executing a short sale allow me to obtain a mortgage (credit scores aside) quicker? I know with a foreclosure we would have to wait I think 3 years until after the deed changes hands before we qualify. My hope was that a short sale would get us around that timeline, if possible

[HHM]

Not really, Since you defaulted on the 2nd mortgage, that will likely be treated as a "defaulted" short sale, which, for lending purposes, is treated like a foreclosure.

But, to find out for sure, you would need to speak to a mortgage broker.

In general, lenders treat short sales and foreclosures the same, and use the same timelines.

[nceguyfromne]

If that is successful, I was then thinking of talking to Citi about a short sale. Does this make sense, is there a better way to do this? Should I attempt to contact both lenders now about a short sale?

I can personally attest to what HHM has said. If I had it to do over again, I definitely wouldn't have wasted my time, effort and money (to stage the house and pay for incidental expenses related to paperwork) doing a short sale. My lender wouldn't even discuss the possibility of a short sale with me until I had an offer in hand and accepted it. Then the real fun began. Mountains of paperwork and weeks of waiting for answers. The deal nearly fell apart at the last minute (a day or two before closing) when they decided they were going to refuse to let the real estate agents take their full commission, not to mention make me sign a promissory note to pay them back $15K of the deficiency in monthly installments for the coming 8 years... "minor details", right?

Worst of all, it hurt my credit just as badly and made future credit (not to mention housing) applications just as difficult. As HHM said, it's pretty much treated as a foreclosure.

And after all that, I ended up filing Chapter 7 a little over a year later anyway.

[bladerunner]

we short sold our home in NV Jan 2010. A short -sale will not fix your credit any sooner. If you live in a recourse state, the banks may come after you with a deficiency balance(our was 139k) but because we were financially insolvent the debt was written off by the IRS. "The Mortgage Debt Relief Act" exp 12-11 will also help you out with the deficiency balance. Good luck getting any kind of HAMP money. the 3k-5k mentioned in your post. Our real-estate agent said paperwork and blah ,blah cost him all the HAMP money and we still ended up owing another 500 bucks. I filed a complaint with our states Att Gen. office and was told fraud is rampant involving the HAMP funds....it has been a year+