Offering lender a Short Sale in a Chapter 7

[lolie]

Does the Short Sale process go any quicker if done in a Chapter 7?

We have an attorney that does both Bankruptcy and Real Estate and I'm wondering how long this whole process will take. Finding a buyer, getting the banks approval and releasing us of the Deed.

He said he will go into the meeting with a Short Sale offer and that the owners (us) want to be moved by July 1. Will it actually move that fast?? And how much do we have to do in regards to a Short Sale? Do we have to hire a real estate agent or does everything go through our attorney?

By the way, we can't surrender. Would love to, but we wouldn't pass the means test if we surrender. We don't want to keep our house and this is are only option under a 7.

[BCA2009]

You don't have to surrender. Just "Intend to Re-affirm" then never submit the re-affirmation to the court. then you are discharged from the debt and can walk away from the house. You could probably stay in the house for free for months if you chose to.

A short sale will be a headache for you and will only benefit the Bank, the lawyer and the real estate agent. I think your lawer may be looking out for his wallet and not your best interest. I'd get get another consultation with a different attorney if I could.

As a matter of fact, attempting to short sale before discharge would probably draw the trustees attention to the fact you are not keeping the house alot faster than just not signing the re-aff. There was someone on this forum who had a short sale contract when they went into BK and the trustee took over the negotiations of the sale which held up closing the BK, and potentially made them an asset case.

If the trustee finds out before the 341 that your house is actively for sale he might not let you use the mortgage payment on the means test.

[BrokeOR]

RE Short sales:

Ours is a bit different situation, in that (win or lose) our house listed for short sale will either be sold or foreclosed before we file. Even if we do get the short sale, it's very SHORT and we'll be adding the balance for discharge during BK to ensure the bank can't continue to come after us, even if they accept a short sale.

We are trying for a short sale mainly because we have strong ties in a beautiful neighborhood and are attempting not to leave our neighbors with a bank-owned (and uncared for property with a large yard and a pool) property near them. It won't help us one bit, but will protect our friends in the neighborhood, and it makes us feel better.

Do you have an actual offer? One of the things that we found out from our bank (WF) is that they almost always reject quickly short sale offers that aren't "arms length" transactions i.e. solicited and generated by a licensed, reputable realtor. Perhaps your real estate attorney would qualify as such, but I'd be very wary of this, given that he is also your BK advisor. Might not look "clean" to your bank.

We hired a local realtor who has successfully closed many short sales, several of them with our lender. We are now assured that our house is listed at fair market value, that any price drops are consistent with what a bank would do (if they end up owning the house) and that an eventual offer will be considered "arms length" by the bank. The big fat bonus is that the realtor willbe presenting our package and negotiating with the bank as our agent.

There are hoops to jump through to gain aproval. The number one reason that banks reject short sales is that they get incomplete packages from the seller. Another bonus from hiring a realtor with experience in short sales is that he/she will give you a list of exactly what you need and make sure it's packaged exactly as your lender would like to see it. So, an offer (even a "good" one) could very well be rejected if you leave out even one scrap of information/documentation they ask for. Eery tax return, every W2, 1099 etc muct be there. Full copies of EVERY page of EVERY bank statement for the past six months. Copies of your last 4 pay checks. Proof of valid homeowner'sinsurance (even if you are PITI and the bank has the info) and on and on. For those of us in BK, the documentation is about the same, but a short sale requires things that a BK does not.

Short sale may not be a good option for you if you need your mortgage payment for a means test. But if you decide to pursue it, the above info should get you started.

[BrokeOR]

Wow-all that and I didn't answer your top question!

Everybody involved with our short sales has told us that very little will make a bank move faster towards approval of a sale. However, there are a couple of things that sometimes make a bit of a difference.

1. The closer you are to foreclosure, the more apt a short sale will get quicker attention. If you get an offer, you will have to submit a "hardship letter", a brief explanation of your circumsstances. Big, bold type face at the top "FORECLOSURE IMMINENT: SHORT SALE OFFER ATTACHED FOR CONSIDERATION" sometimes causes some bank reps to get a move on

2. This has only worked once for my realtor (but it worked!): The offer itself included a drop-dead date for bank approval before the offer would be withdrawn and earnest money would be returned.

Short sales can be a frustrating, inexact science, but the banks are warming up to them. A short sale vs a foreclosure does save them money and the savings are adding up for the banks who have a lot of defaulting loans. Wells Fargo has even recently begun training sessions for real estate professionals on how to do a clean short sale,and Citibank is hiring more people and training them to analyze these transactions faster and more accurately for more success.

[lolie]

BrokeOR,
Thank you for your reply. We don't have the proposal from our attorney quite yet, however, my understanding is that we don't qualify for a SURRENDER or DEID IN LIEU because we need our mortgage to pass the means test to file Chapter 7. Therefore, we have to offer a Short Sale.

Our situation is a little different. We are filing for BK and will be offering the lender a Short Sale within the BK. However, according to your reply, if we do a Short Sale and the sale goes through before discharge it could still push us into a 13. Is that right?

My concern now is that my attorney is pushing for the Short Sale for his own monetary benefit. I have a message into his office to call me back on this very question. I'm very interested in his answer, but I want to give him the benefit of the doubt. He may not know what he is working with until the Paralegal types up all the figures. He has seen everything and we have had two meetings with him, but every time I have brought up surrender, he has always side stepped it and said short sale.

We don't have an offer on our house. It is not even listed. We haven't been late on any of our payments, so this will come of a bit of a surprise to our lender. The first and second are both with Chase, so we don't have the hurdle of a second lender approval.

My other concern is that there are over 500 homes in our city up for a short sale. What will make our home so much more appealing that it would be sold in 60 days? It's questions like these that I have for our attorney.

I can research and asked people their opinions, but every district, every state, and everyone's situation is unique. It's just frustrating not knowing the fate of my living situation especially since we have kids that go to school.

Only time will tell. Once again thank you for your reply and good luck with your short sale.

[BrokeOR]

If you are comfortablw with your lawyer in BK, great. But, given the "education" I have gotten lately on short sales and their acceptances, he's not a good leader for the real estate transaction. Especially since you have stayed current mortgage, your lender is going to have to be convinced 1) that you are financially insolvent to a point where you cannot continue your committment (that's why they require a hardship letter and complete documentation of your financial condition and 2) that you have listed your home and solicited a short sale in an appropriate manner before it will approve your sales.

In my opinion, your lawyer isn't the one to for you to quiz about the real estate situation. A realtor in your area who specializes in short sales can answer your questions about your home's marketability and what it would take to get an offer. I found my realtor by Googling "short sale specialist realtor my town's name" and found the man who is working for us. I even got a referral from him, a client who had success with a short sale with WF using my realtor. His office is strong, and they aren't afraid to bring clients to the house, as they know they're working with an expert in short sales who has the best shot of approval.

Do ask your lawyer, though, about whether or not your house has to close before you file. You may have more time to find a buyer than you think.

One last thought about short sales: In my area, as well, we have many homes that have/are selling short. The realtors who toured my home initially and are now bringing prospective clients by have all commented on the good condition of our home. Apparently, many who try to short sell put their homes on the market without even cleaning them! Don't get me wrong: Don't put any money into your house, but it costs nothing or next to nothing to fix small things like nicks in paint, rent a carpet shampooer and shine the windows and baseboards and things. I even "cheated", and painted the interior trim and baseboards of my home (I had the paint, I'm a good free hand painter and it didn't take much time) and WOW-what a difference that small thing made. Treat a short sale as much like a traditional sale as possible, and help your house shine over the other short sales and be as competitive with the traditional listings as possible.

I had 8 showings in two days, two of them came back within another 2 days and we have another "be back" scheduled tomorrow. My realtor says we have two serious prospects for whomour house is on their top two list and is confident that we'll get an offer...Will Wells Fargo approve? I'll keep you posted

[BrokeOR]

One final thought:

Every attorney I spoke with, including the one I hired, actually discouraged the idea of a short sale (for the reasons somebody listed above). But we determined that financially and for the 7, it wouldn't hurt, so we went ahead foir the reasons I've stated.

You might want to be wary of your attorney if he is "pushing" for a short sale, given that it seems counter to most lawyers thoughts. And, if you do decide to go for it, do not use your lawyer to sell your house. You wouldn't use a realtor to do your Chapter 7,
right?

[lolie]

Just spoke with our attorney

O.K. his answer to my question which was, "Why are we offering the lender to do Short Sale and not just surrendering?"

His answer,"we could put down surrender or Short Sale, that is entirely up to you. However we need to look at your final numbers and see if either will push you to a Chapter 13. Also, there is a Tax Bill that is on the Governor's desk for approval to tax residents on unforgiven mortgage debt. That may really change things. It doesn't look like it will pass, but we will have to look at it differently if it does. We really just need to see where are numbers are and then we can build the case, but I will do what you want me to do."

Personally, I would rather go the surrender route. I have a relative in the mortgage business that deals with the loans on Short Sales and says she has seen so many buyers back out of Short Sales because of the lenders dragging their feet. She herself is opting to surrender her home and not do a Short Sale, just for this reason.

I have relatives that are in the real estate business as well and that's all they are doing are Short Sales. They said it all comes down to the lenders and what they are willing to swallow.

We'll have to just wait and see what are numbers say. At this point, I don't really care what happens, as long as we come out in the end better off then we are. Who knows, we may end up even keeping the house, depending on the deal the lender wants to make. I guess we'll cross that bridge when we come to it.

BrokeOR, once again, good luck. It's a tiresome waiting game.

[BCA2009]

O.K. his answer to my question which was, "Why are we offering the lender to do Short Sale and not just surrendering?"

His answer,"we could put down surrender or Short Sale, that is entirely up to you. However we need to look at your final numbers and see if either will push you to a Chapter 13. Also, there is a Tax Bill that is on the Governor's desk for approval to tax residents on unforgiven mortgage debt. That may really change things. It doesn't look like it will pass, but we will have to look at it differently if it does. We really just need to see where are numbers are and then we can build the case, but I will do what you want me to do."

Personally, I would rather go the surrender route. I have a relative in the mortgage business that deals with the loans on Short Sales and says she has seen so many buyers back out of Short Sales because of the lenders dragging their feet. She herself is opting to surrender her home and not do a Short Sale, just for this reason.

I have relatives that are in the real estate business as well and that's all they are doing are Short Sales. They said it all comes down to the lenders and what they are willing to swallow.

We'll have to just wait and see what are numbers say. At this point, I don't really care what happens, as long as we come out in the end better off then we are. Who knows, we may end up even keeping the house, depending on the deal the lender wants to make. I guess we'll cross that bridge when we come to it.

BrokeOR, once again, good luck. It's a tiresome waiting game.

I don't understand what your attorney is up to, but all debt that is discharged in BK is exempt from taxes, both state and federal.

Are you current on mortgage? If not your only choice may be to select surrender. If you are current, you can select re-affirm (then later change your mind). This way you can use the mortgage payment on your means test.

I still can't see any benefit to doing a short sell.

[lolie]

That is not necessarily true, from what I understand. (And I could totally be wrong.)
We are in CA. and the governor has a bill on his desk TODAY to pass or veto. As it stands now, you may not responsible for deficiency amount, but you are responsible for taxes on the forgiven debt by CA state laws. This is just coming out because people are getting there 1099's in the mail. Don't think these individuals claim BK though.

However, during bankruptcy, from what I understand, if you include your mortgage and do not reaffirm the debt and deficiencies are IIB after discharge. Please correct me if I'm wrong. Now for a new law in CA. Homeowners would be forgiven of mortgage deficiencies, but not second equities taken out for paying off CC or used for anything other than use for the property. This debt would be taxed. Not kidding!!

Yes, we are current on our mortgage, but we intend on surrendering because of how underwater we are. Even if we are stuck with a taxed second which is roughly 50K. We are still underwater on our original purchase of our home by over 200K. So, I would be happy and I'm mean doing cartwheels and backflips if I could get out from under our home.

Not sure what the attorney is thinking either, but I think he is trying his hardest to keep us in a Chapter 7. If we go to a 13 because of assets or income, we may end up over the limit because of the deficiency left by our house. Then we have no other choice, but to keep it, strip the second, and fight like hell with the lender to change the terms on the first. (ARM)

I don't know. I'm going to let my attorney figure out the numbers and let me know which way he thinks we could go.

Also, I didn't mention, we own a business that is quite profitable and we plan on keeping it. Not much interest in it, but might be enough for the TT to want to take it. That too could push us to a 13. Lot of variables and I can't wait to see how this all works out.

And I'm with you, I don't see any benefit to doing a Short Sale either, unless, I was the lender, a real estate agent or my attorney.

[BCA2009]

I had never heard of someone being taxed on the forgiven debt at the state level and just assumed all states followed the Feds on that issue. I'm sorry if I gave incorrect information. There are alot of people on this forum from California and I haven't read of an issue.

I'm sure someone who has been discharged in Cali will chime in and give us the low down.

[BrokeOR]

lolie:

An update on our short sale proceedings. After 2 and a half weeks on the market, we got three offers on Friday. Because one realtor was stupid enough to tip my realtor off on Thursday that an offer was coming, my realtor was able to contact all the other people who had our house on the "top of the list" to tell them it's now or never. As a result, we're in a bit of a bidding war. Two of the offers came in significantly over the list price and each of those is a cash offer, not from investors but from private parties who want to live here.

Now we're playing with terms. Because I have a realtor with successful short sale closing experience, he knows exactly the terms the bank will need to see, and so all of the offers were countered with some technical fixes and each of the buyers were notified that we have multiple offers, bring your best price etc. The one thing that is no longer a concern,, however, is how the lender and their appraisers will view the offer price. We'll either be accepting exactly at market value (based on sold comps for my area) or above. That's a great position to be in with the bank, as they don't have to wonder whether or not we've solicited the best price.

Bottom line: By Monday evening, my house will be under contract. By Tuesday, my realtor will have presented the offer to the bank and begun the negotiation process. So the clock starts ticking March 23, and let's just see how it all goes. I'll keep you posted,, but my advice continues to be that, if you are contemplating a short sale, find a reputable realtor who has successful short sale experience, preferably with your lender. Over the past couple of weeks, most of the realtors who have brought clients to my house have told me that my realtor is well known in the area for his expertise in successful outcomes with short sales. Two of the realtors who brought client offers to the table have worked these sorts of transactions with him before, and their confidence that he can get this doen is probably key to why we got so many good, solid offers at once.

[lolie]

BrokeOR,
That's awesome!! Wish that were the case for everyone. Not sure where you are located, but in our city there are over 500 short sales on the market. Might be a little more difficult where we are, but that is awesome for you.

If I can swing it, we will be surrendering, not doing a short sale. Just a personal decision. We still may end up keeping our house. It's all up in the air. We'll just have to wait and see.

Let me know the outcome. Curious to hear how it all works out. Best to you.

[BrokeOR]

I live in a small town (63,000 with another 14 thousand in adjacent towns)-West Coast, beseiged by an economic downturn that has seen the 3 largest employers fire 6,500 workers in the past year, with another large employer set to close in another 4 months. My home has lost 35% of its value since I bought it 6 years ago, almost 50% since the "top of the bubble", which hit here in 2007. At this point, there are just under 200short sales available on the market.

I hear you-every area and situation is different. After having heard this directly from realtors who have shown my house, I know that ours shows as well as other "normal" sales in it's range and head-and-shoulders above other short sales. Even though we have some material flaws (roof nearing the end of its useful life and a large, semi circular drive way that is crumbling), we are in an area that is established and in a good school district. Another plus: Nobody else in this neighborhood is selling right now and it's rare for a house in this area to come on the market. Head a quarter of a mile in either direction and you'll find a ton of houses, but in this particular area-no competition.

Does a short sale help us? Only our psyches, as our Chapter 7 is the big black mark we'll have to deal with. We're happy to be leaving our house in an orderly fashion and to new owners who will keep it nice and benefit the neighborhood. Honestly, if I didn't care about my neighborhood, I would have just let the bank scoop it.

Good luck to you in your decisions, as well. And for curiousity factor, I'll probably post the outcome of our short sale, as well. Who the heck knows? It all still may go south!