So are short sales a waste of time?

[basketsbears]

I read the sticky about short sales and it sounds like they are a wate of time.

We are thinking about it for rental, but sounds like it is better to file BK and include it in BK.

We are just trying to figure what to do.

thanks!

[justbroke]

Is this your primary residence and you want to keep it and rent it out? Are you intending to keep current? Otherwise, I don't understand the rental reference.

A short sale can be a good strategic way of dealing with the timeline to purchase a new home under FHA or Fannie/Freddie guidelines. It saves you about a year of waiting over a foreclosure.

However, let's see the caveats! Most short sales never close. You'll get all the way to closing, and the bank will bark at something. If you have junior liens (2nds, 3rds, etc), the short sale will be HIGHLY complex. If you have back taxes, this could complicate it too.

The general feeling is that you should avoid a short sale unless you really know you can close it, or you're just doing a "friend" or family Realtor a favor. You can always "include" it in the bankruptcy and "ride through" (in almost all cases). As a former landlord, I'd say stay out of the landlord business if you can. Unless you have attitude of a slum lord. (Okay, maybe that's a bad way to say it.)

[basketsbears]

It is not our primary residence. It is my husbands old house and we are renting it out. There is only one mortgage with Bank of America. It has been suggested by an attorney, but after reading this post seems like a waste of time.

[justbroke]

It's really about strategy. If you're looking to recover quicker and perhaps not have to wait a potentially long foreclosure timeline (should you surrender it)... a short sale can help. However, I would never count on a short sale and I wouldn't put more than "attempt's" worth of effort in it. In other words, see it to the first contract, and try to close. If it doesn't close, or it's been more than 90 days, you can pursue a deed-in-lieu of foreclosure with the lender.

[basketsbears]

Thanks for your help. My husband just wants rid of it. He wants to just let it foreclose and file BK for relief of any difference. The property is located in small rural area that is dying. The town's buildings are closed and boarded up, no real jobs, so not a lot of activity.

[justbroke]

Then you have made your decision! I'm glad I could help you think through this some more. I tried to keep one of my investment properties -- that is located in another State. It sat empty for 6 months, even with a so-called "management company" managing it!

[HHM]

Good for you.

By and large, 80% + of attempted short sales never close. They tend to be more hassle then they are worth for a low probability of success and marginal (if any) benefit.

Short sales are actually an odd dog in this sort of market...
1. Regular buyers don't really have the patience to wait around for the short sale process (which takes months).
2. Investors don't typically buy short sales because they can get a better deal buying at foreclosure auction or as a REO (REO = Real Estate Owned by Bank).

So, despite short sales being constantly promoted as a way to avoid foreclosure, trying to sell a house on short sale significantly limits your pool of buyers.

[goodyphilips]

Yes indeed I completely agree, shorts are sales are difficult and lengthy. I am glad you made a difficult but the best decision in this situation.

[nceguyfromne]

Unless you're planning to show up at closing with a check to pay for the deficiency, the only difference I see between a short sale and a foreclosure is who does the work. With a short sale, you do all the work and lose your property sooner. By every other comparison, they are the same: you'll be on the hook for a deficiency and your credit score will suffer considerably. I short saled my former marital home a few years back because I had too much foolish pride and refused to be "branded" with a foreclosure or bankruptcy. A day before the closing, I got final approval from the lender, conditional upon my signing a promissory note to pay them back about 2/3 of the deficiency. Nearly $200/month for 10 years! Take a moment to imagine writing a check every month for 10 years (or, in my case, for 2 years until I finally came to my senses and filed Chapter 7) for nothing except the privilege of not being sued. Not only that, but since the promissory note didn't cover the full deficiency, the account was not closed with a "clean" status (i.e. "paid as agreed") on my credit report, which, for a mortgage anyway, might as well just say "foreclosed."

[Bob Walker]

The Truth about Short Sales

My wife and I tried to sell our home last year by Short Sale, and this was after a couple of years after our Ch7 discharge.

We could not do a Deed in Lieu because we had a second mortgage, so we tried to help our credit by doing a short sale. Big mistake!

It has been 12 months since we stopped paying the mortgage and already vacated the home. We had an offer come in a couple of months ago, but the bank turned it down and what made it worse was they were only going to offer the 2nd about $3,000.

So here is some truth for you, as I learned from our realtor lately:

Any short sale with a second through Chase, Wells Fargo or BoA will only be offered $3,000 for any balance over $3,000. Now get this, all of these banks have agreed to one another that any short sale coming in with that 2nd offer will be DENIED, even though your 1st lender may have agreed to the offer.

So what does this mean for those trying to do a Short Sale after BK? If you included your loans in your Ch7 BK, just call your lenders, starting with the second, and tell them you want to surrender your property. That's it!

They will start the paperwork in motion to render their ownership properly from the 1st lender. You then call your 1st lender and tell them the same thing and that you have already spoken with the 2nd lender.

The first lender may require you to submit a formal letter of abandonment or surrender to them along with a key, so draft a simple letter up, but be sure to send it to their Bankruptcy Department so that it can be forwarded properly within their offices.

I've been told that it could take between 10 and 30 days to get ownership transferred, and to speed up the transfer of ownership even faster I've been given "read between the lines" advice from our utility company that if they are not paid they file a lien, and that's the last thing banks want when trying to get rid of property so they do all transfers of ownership quicker to get the liens removed so they can "dump" the property.

....and that's the Truth!

[ryan]

....Any short sale with a second through Chase, Wells Fargo or BoA will only be offered $3,000 for any balance over $3,000. Now get this, all of these banks have agreed to one another that any short sale coming in with that 2nd offer will be DENIED, even though your 1st lender may have agreed to the offer.

Thanks Bob, thats interesting, and not surprising. So, three of the biggest mortgage lenders have agreed to only offer $3K to each other who hold seconds AND to then to refuse said offers. Which effectively kills any chance a seller would have of putting together a successful short sale! (as if there weren't already enough problems making a short sale stick.
Sheeeeesh!

[lovemybugs10]

I've actually had a positive short sale experience. With cruddy companies too. Ocwen and Saxon. (sp?) Took forever, but in the end it work out better than had we let the house go into foreclosure. We weren't in such a financial mess back then though. The second (80/20 loan) took 2k and were happy about it, the 1st ended up being fully paid.

Edit: I did have a second house shortly after through 5th 3rd that didn't work out and ended up foreclosing. We tried to short sale for 30k less than we owed and 5th 3rd turned us down. (even after giving us that number as their bottom line)

So I've had it go both ways.