Anyone experienced a short sale?

Question

My fiancee and I purchased our first house in June 2008.We had wonderful jobs and so we figured it was right to buy a wonderful new home. Well in January 2009 my fiancee lost his job. He didn't find a job until recently in October 2009 but he's making about 1/6 of what he was making before. The bills have been rolling in we are now about 5 months behind on our credit card bills, we have spent all of our savings and his 401k. We have absolutely no money left , we are literally living check to check. Now the big problem we have managed to stay up to date with our mortgage payments until now. We have not paid this months mortgage. He works in the oil industry and i have been thinking about relocating somewhere for a better job.So i have been doing research on what we could do about it. I came across the whole short sale ordeal. We need something that would help us with our upside mortgage. We have not gotten our house appraised since we got it but i know its less then what we owe because we bought it at a very high price.
Has anyone been through a short sale?
I would like your thoughts and feeling about the whole ordeal.
How long did it take?
After wards did you feel like you did the right thing?etc.

Answer 1

Great questions.

I'm an investor so I've been through lots of short sales. My honest advice is that it's a last resort, not a first resort. If you have other options available to you first, take them. Since you may not have any other options, I wanted to give you some short sale specifics.

I copied part of this FAQ from our website on investing short sales as from the perspective of an investor giving information to a seller but it's all factual.

What happens to my credit rating?

What typically happens is the loan will show up as "paid" on their credit report; however there will be a notation that says "settled for less than originally owed" or something along these lines. It is more favorable for a homeowner to short sell than to have a foreclosure on their credit report. Typically they can repair their credit inside of a year or two with a short sale on their bureau where as they would be screwed for at least 7 years with a foreclosure.

Can I make money from a short sale?

Nope. All you'll keep is your credit rating.

How do bankruptcies affect the possibility of doing a short sale?

Most mortgagees won't consider a short sale if the homeowner is in bankruptcy...why? Because negotiating a short sale payoff is considered a collection activity. Collection activities are prohibited in bankruptcy.

Stop filing bankruptcy and see if we can be successful with the short sale first! If it works, you probably won't need one.

Can the bank go after me for the difference?

The banks used to be able to and there are some horror stories of that. However, in 2007 George W passed bill HR3648 which largely prevents banks from doing that provided that it is the owner's primary residence. It's not out of the question altogether but it's more likely that they will be free and clear with a bit of a setback to their credit.

You can put a clause in your purchase contract that the seller is to be "rendered blameless for the outstanding loan balance" to help you and the seller both achieve what you want simultaneously. It's not out of the question that the bank will go after the seller if it is not their primary residence but it is becoming a lot less common. The only way they'll know for sure is to go through the process. Doing nothing will result in them owing the money so it's always worth a shot.

I have more than one mortgage, can we still do a short sale?

Absolutely.

One other last option you may want to consider is doing a rent to own for a really long time on your property. Obviously your property has to cash flow in the right direction which is unlikely but not impossible. If you do the rent to own for long enough, you may be able to wait out the market rebound for long enough that the option price of "market value" may actually cover you in the long run. We have done lease-options (aka rent to own) for as long as a 10 years.

Either way good luck and if you have additional questions you can email me at frankfihn at gmail dot com.

Source(s):

Free Real Estate Investment Course + Free Credit Repair Report
http://www.theinvestortoday.com

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