Short sale? Walk away? Run?
April 15, 2009 4:16 AM Subscribe
My wife and I need to get out of our house ASAP for reasons both financial and mental-health-related. I've been told we may need to look into a short sale, but researching the process is making my head explode.
What, if any, are our options? (more inside, obviously)
We bought this house 4 years ago, on two incomes, intending to start a family. Short version - it hasn't happened yet, and won't for the foreseeable future. This, and a few other stressors, helped bring my wife into a depressive spiral, which led to her leaving work indefinitely about a year ago.
We currently live on my salary plus a pittance from her long-term disability - we're working on getting more, but Social Security is notoriously slow to approve this kind of thing. We're not behind on any payments yet. We've got three loans for this house - we financed initially with an 80/20, and between the two have managed to pay down about 10% of the principal. We also have a loan through our town that we used to pay for a new well and replacement septic system. We have a little bit in savings, but if we continue to pay the minimum payments on all the loans (and eat, keep utilities current, etc.) it'll be gone in another 6 months or so.
Her counselor has mentioned that living here may well be an additional stressor for her, and that we might need to work on finding a way out to help her recover. It's an older house that, while livable, definitely needs a lot of work that we either can't afford to have done, or don't have the energy or ambition to tackle right now. We have an offer from a family member to stay with them if we need to get out, and neither of us is too proud to take them up on it.
I did the online credit counseling at 995-HOPE’s website, and the counselor there suggested putting the house on the market, but mentioned that we may need to consider a short sale. It’s highly unlikely, if we sell the place, that we’ll get anything close to what we owe on all the loans, and we really don't want to foreclose.
Where we’re not in arrears with either of our mortgage companies, is short sale even an option? How do we find an agent willing to put in the extra work for less money? Are there other options we haven’t considered? It’s all incredibly confusing and frustrating - if you can, please help us, hive mind!
We bought this house 4 years ago, on two incomes, intending to start a family. Short version - it hasn't happened yet, and won't for the foreseeable future. This, and a few other stressors, helped bring my wife into a depressive spiral, which led to her leaving work indefinitely about a year ago.
We currently live on my salary plus a pittance from her long-term disability - we're working on getting more, but Social Security is notoriously slow to approve this kind of thing. We're not behind on any payments yet. We've got three loans for this house - we financed initially with an 80/20, and between the two have managed to pay down about 10% of the principal. We also have a loan through our town that we used to pay for a new well and replacement septic system. We have a little bit in savings, but if we continue to pay the minimum payments on all the loans (and eat, keep utilities current, etc.) it'll be gone in another 6 months or so.
Her counselor has mentioned that living here may well be an additional stressor for her, and that we might need to work on finding a way out to help her recover. It's an older house that, while livable, definitely needs a lot of work that we either can't afford to have done, or don't have the energy or ambition to tackle right now. We have an offer from a family member to stay with them if we need to get out, and neither of us is too proud to take them up on it.
I did the online credit counseling at 995-HOPE’s website, and the counselor there suggested putting the house on the market, but mentioned that we may need to consider a short sale. It’s highly unlikely, if we sell the place, that we’ll get anything close to what we owe on all the loans, and we really don't want to foreclose.
Where we’re not in arrears with either of our mortgage companies, is short sale even an option? How do we find an agent willing to put in the extra work for less money? Are there other options we haven’t considered? It’s all incredibly confusing and frustrating - if you can, please help us, hive mind!
Have you thought through the economics of renting the house out instead?
posted by carmicha at 5:04 AM on April 15, 2009
posted by carmicha at 5:04 AM on April 15, 2009
Response by poster: Flood: It's not that I'm looking to skip out on paying someone what they deserve. I'd been led to believe that there are short sale specialist realtors, whose commission is paid by the negotiations between the lender and the seller, and that not every realtor is equipped to handle a short sale. Is that not the case?
carmicha: Haven't looked into renting it out, but my gut tells me that the improvements we'd need to make in order to make the house attractive to a renter would also cost more than we can sink into it.
posted by anthom at 5:25 AM on April 15, 2009
carmicha: Haven't looked into renting it out, but my gut tells me that the improvements we'd need to make in order to make the house attractive to a renter would also cost more than we can sink into it.
posted by anthom at 5:25 AM on April 15, 2009
With regards to short sales, it is not a quick and easy process to sell a house. It is a rather stressful ordeal, more so than other real estate transactions. Read the previous AskMe threads. My suggestion, if you decide to go this route, is to stop making mortgage payments and refuse to make any financial disclosures. Give the mortgagees two options: eventual foreclosure or short sale.
Any financial information you provide mortgagees only complicates the basic choice you want to give the mortgagees. Say nothing other than "due to life changes, we must move" and that you will go along with a short sale or they can take the more costly option (to them and you) of foreclosure. The mortgagees knew, better than you, when making the loan that there was no guarantee you would pay off the mortgage and that is why there is collateral. Now is the time to remind them of that fact.
I have no idea what Flood is talking about. In the aftermath of the real estate bubble and even greater get-rich-quick real estate agent boom, realistic real estate agents are happy to be offered the chance to make a commission. Pay them more? Ha! Negotiate hard and make them compete for your business. But pick someone with short sale experience. They'll be aware that their final commission will be subject to negotiation with the lending banks.
posted by McGuillicuddy at 5:29 AM on April 15, 2009
Any financial information you provide mortgagees only complicates the basic choice you want to give the mortgagees. Say nothing other than "due to life changes, we must move" and that you will go along with a short sale or they can take the more costly option (to them and you) of foreclosure. The mortgagees knew, better than you, when making the loan that there was no guarantee you would pay off the mortgage and that is why there is collateral. Now is the time to remind them of that fact.
I have no idea what Flood is talking about. In the aftermath of the real estate bubble and even greater get-rich-quick real estate agent boom, realistic real estate agents are happy to be offered the chance to make a commission. Pay them more? Ha! Negotiate hard and make them compete for your business. But pick someone with short sale experience. They'll be aware that their final commission will be subject to negotiation with the lending banks.
posted by McGuillicuddy at 5:29 AM on April 15, 2009
Response by poster: So how do you find a short sale specialist?
Do most of the major realty agencies have someone who deals with short sales?
I know the process is different from a standard sale, but do you have to start out with the intention to sell short? If it's at all possible to sell this thing at value, I'd obviously prefer it, but that seems like wishful thinking.
Sorry for all the stupid questions here - I'm just really confused and don't want to mess this up.
posted by anthom at 6:16 AM on April 15, 2009
Do most of the major realty agencies have someone who deals with short sales?
I know the process is different from a standard sale, but do you have to start out with the intention to sell short? If it's at all possible to sell this thing at value, I'd obviously prefer it, but that seems like wishful thinking.
Sorry for all the stupid questions here - I'm just really confused and don't want to mess this up.
posted by anthom at 6:16 AM on April 15, 2009
Its going to depend on the economics of the area, but a short sale is probably much less likely if you're young to middle-aged and might be making money within the next ten years. If the bank forecloses on you and gets a judgment against you, that sticks for 10 years. Its going to depend on your particular circumstances. If I were you, I'd contact a local legal aid non-profit and see who they work with when coming to short sales. They may take you on as a client, but if not, if they do foreclosures at all they'll know who is good in the area at negotiating short sales. Good luck.
posted by craven_morhead at 6:33 AM on April 15, 2009
posted by craven_morhead at 6:33 AM on April 15, 2009
2 more rental ideas: you could rent it as a group house- do you live in a college town?
We used to own a 5 room house in DC and rented each room for b/w 650-800.
Also- do you have a finished basement? You could look into renting that space and continue to occupy the upstairs.
posted by hellboundforcheddar at 7:01 AM on April 15, 2009
We used to own a 5 room house in DC and rented each room for b/w 650-800.
Also- do you have a finished basement? You could look into renting that space and continue to occupy the upstairs.
posted by hellboundforcheddar at 7:01 AM on April 15, 2009
"Her counselor has mentioned that living here may well be an additional stressor for her, and that we might need to work on finding a way out to help her recover."
I'm very skeptical of that statement and expect that it is adding a degree of urgency that is probably the opposite of what you both need right now.
Unless you are living in peril of the house collapsing or the place is haunted or sumptin, the presumption that the home-ownership is causally related to your wife's "depressive spiral" is a dangerous falsehood and rather unprofessional. Put another way, no one has ever been cured of depression by changing residences and staying with a family member adds its own set of different "stressors". I suggest that to the best of your ability you disregard that flawed notion. That doesn't seem to affect your fiscal circumstances, but it may allow you to be more clear-headed about the decisions you do need to make.
posted by fydfyd at 7:01 AM on April 15, 2009
I'm very skeptical of that statement and expect that it is adding a degree of urgency that is probably the opposite of what you both need right now.
Unless you are living in peril of the house collapsing or the place is haunted or sumptin, the presumption that the home-ownership is causally related to your wife's "depressive spiral" is a dangerous falsehood and rather unprofessional. Put another way, no one has ever been cured of depression by changing residences and staying with a family member adds its own set of different "stressors". I suggest that to the best of your ability you disregard that flawed notion. That doesn't seem to affect your fiscal circumstances, but it may allow you to be more clear-headed about the decisions you do need to make.
posted by fydfyd at 7:01 AM on April 15, 2009
Best answer: Whether short sale experience is wide spread in your area will depend on the local market. You should probably start with the HOPE NOW alliance for counseling about your options. You might also check out this list of of real estate agents with short sale experience. You can also just call local real estate offices and ask whether anyone there has done short sales. You might ask any agents for references or documentation to assure yourself they are being honest.
In your confused state, be careful about paying anyone anything other than a commission for the short sale. In the Zillow link above, not everyone listed is a listing agent. I don't know anything about the people listed, but there are scam artists targeting people that need to get out of their homes quick. Any consultants a real estate agent wants to bring into the process should be paid out of the agent's commission or as part of the sale.
Whatever happens, you should not feel ashamed if you have to default on your mortgage. Try not to let the house add to your stress. Mortgages are not matters of honor, but of financial expediency for all parties. The mortgagees knew the risks when they entered the deal.
Good luck!
posted by McGuillicuddy at 7:02 AM on April 15, 2009
In your confused state, be careful about paying anyone anything other than a commission for the short sale. In the Zillow link above, not everyone listed is a listing agent. I don't know anything about the people listed, but there are scam artists targeting people that need to get out of their homes quick. Any consultants a real estate agent wants to bring into the process should be paid out of the agent's commission or as part of the sale.
Whatever happens, you should not feel ashamed if you have to default on your mortgage. Try not to let the house add to your stress. Mortgages are not matters of honor, but of financial expediency for all parties. The mortgagees knew the risks when they entered the deal.
Good luck!
posted by McGuillicuddy at 7:02 AM on April 15, 2009
I really think you're underestimating what people are willing to rent. If you live in a town with a decently strong rental market, or a college town, you may be able to rent it out as-is. Have you talked to a professional about this option, or are you just assuming that nobody would rent it?
posted by fructose at 7:22 AM on April 15, 2009
posted by fructose at 7:22 AM on April 15, 2009
I am assuming you're in the U.S. If not, none of this likely applies.
You cannot do a short sale without the cooperation of your lender, particularly if you are not in arrears. A short sale simply means selling the property for less than is owed on the first mortgage. Without the cooperation of your lender, you still owe them the difference. A very simplified explanation of any sale of a mortgaged home works like this:
You owe $200,000 on your mortgage. You sell the house for $230,000. The first $200,000 goes to your mortgage lender to pay off the first mortgage. The remaining $30,000 is distributed over other liens on the property in order of legal priority (such as unpaid taxes or a second mortgage), then over the contract costs of the sale, then any remainder goes to the seller.
A short sale is a sale where the sales price does not cover the first mortgage (a "first" mortgage is simply the priority mortgage lien on the property, which means it is the first mortgage paid to clear title on the property so that the property can be transferred between owners). So say you owe $200,000 on your mortgage and sell for $180,000. You still owe your mortgage company $20,000 (and there most likely are additional liens, such as the second yearly tax payment on the property which will need to be paid before title can transfer cleanly), and someone must still cover costs of the transaction (at a minimum, the county recording fees and transfer taxes). A short sale cannot be conducted without the cooperation of the lender unless you plan to cover the shortage personally.
The alternative to a short sale is usually a deed-in-lieu, which is basically giving your mortgage company the deed to the property in lieu of their foreclosing the lien. Lenders are up to the ears in houses they don't want and can't sell, so are unlikely to consider deeds-in-lieu.
You need an attorney. Or as craven_morhead says: whatever local legal aid is working with homeowners right now. But realize, as a homeowner who is not in arrears, you will fall to the bottom of a very very very busy workload at the legal aid.
property taxes, of course, in most U.S. counties are all unpaid, in the sense that the tax bill for 2009 covers the property taxes assessed in 2007. So everyone has a potential tax lien on the property when they go to sell it.
posted by crush-onastick at 7:38 AM on April 15, 2009
You cannot do a short sale without the cooperation of your lender, particularly if you are not in arrears. A short sale simply means selling the property for less than is owed on the first mortgage. Without the cooperation of your lender, you still owe them the difference. A very simplified explanation of any sale of a mortgaged home works like this:
You owe $200,000 on your mortgage. You sell the house for $230,000. The first $200,000 goes to your mortgage lender to pay off the first mortgage. The remaining $30,000 is distributed over other liens on the property in order of legal priority (such as unpaid taxes or a second mortgage), then over the contract costs of the sale, then any remainder goes to the seller.
A short sale is a sale where the sales price does not cover the first mortgage (a "first" mortgage is simply the priority mortgage lien on the property, which means it is the first mortgage paid to clear title on the property so that the property can be transferred between owners). So say you owe $200,000 on your mortgage and sell for $180,000. You still owe your mortgage company $20,000 (and there most likely are additional liens, such as the second yearly tax payment on the property which will need to be paid before title can transfer cleanly), and someone must still cover costs of the transaction (at a minimum, the county recording fees and transfer taxes). A short sale cannot be conducted without the cooperation of the lender unless you plan to cover the shortage personally.
The alternative to a short sale is usually a deed-in-lieu, which is basically giving your mortgage company the deed to the property in lieu of their foreclosing the lien. Lenders are up to the ears in houses they don't want and can't sell, so are unlikely to consider deeds-in-lieu.
You need an attorney. Or as craven_morhead says: whatever local legal aid is working with homeowners right now. But realize, as a homeowner who is not in arrears, you will fall to the bottom of a very very very busy workload at the legal aid.
property taxes, of course, in most U.S. counties are all unpaid, in the sense that the tax bill for 2009 covers the property taxes assessed in 2007. So everyone has a potential tax lien on the property when they go to sell it.
posted by crush-onastick at 7:38 AM on April 15, 2009
AFAIK - and I'm not an agent, just someone who recently bought a house with a short sale - you're not going to be able to just arrange a short sale easily or if you are not in danger of foreclosure. If you're serious about doing this, realize that it's probably going to wreck your credit. You could try calling around a few real estate offices and see if any agent could give you more information.
My seller just stopped paying the mortgages. The banks (she had two loans on the house) fought like psychotic cats & dogs over who would have to take the short sale and it took months for them to finally agree. Actually, they only agreed when the foreclosure auction was imminent. Having three loans is going to make it a real mess. Good luck!
posted by mygothlaundry at 7:40 AM on April 15, 2009
My seller just stopped paying the mortgages. The banks (she had two loans on the house) fought like psychotic cats & dogs over who would have to take the short sale and it took months for them to finally agree. Actually, they only agreed when the foreclosure auction was imminent. Having three loans is going to make it a real mess. Good luck!
posted by mygothlaundry at 7:40 AM on April 15, 2009
and we really don't want to foreclose
You really don't want the bank to know this. Their fear of foreclosure is the only thing that is going to get them to move forward with a short sale. Read the AskMe horror stories of balking banks for more.
posted by Civil_Disobedient at 7:43 AM on April 15, 2009
You really don't want the bank to know this. Their fear of foreclosure is the only thing that is going to get them to move forward with a short sale. Read the AskMe horror stories of balking banks for more.
posted by Civil_Disobedient at 7:43 AM on April 15, 2009
Best answer: Nthing avoiding scam artists. You may want to contact a local HUD-approved counselor, such as Coastal Enterprises in Wiscasset. Select, "contact us" from the left and then "housing dept" from the center list. Probably best to talk to someone local and free who knows the area/market and isn't trying to get money off you.
More info on HUD's website for Maine here, including info on avoiding scams. Note: they have a foreclosure prevention workshop in Bath on May 9th. If you have time, the best thing to do is explore all your options and educate yourself.
posted by Marie Mon Dieu at 7:47 AM on April 15, 2009
More info on HUD's website for Maine here, including info on avoiding scams. Note: they have a foreclosure prevention workshop in Bath on May 9th. If you have time, the best thing to do is explore all your options and educate yourself.
posted by Marie Mon Dieu at 7:47 AM on April 15, 2009
If the house is going to ruin your finances and you aren't able to restore your income IMO you need to stop paying the loans. The bank doesn't benefit from you moving out so continue to maintain the property and wait on events from them. It may be possible to get a loan modification or a reworking of loans down the road.
This sounds like irresponsible advice but the world has changed from 4 years ago and you are one of millions in similar situation. That your house needs work to be livable strongly implies you won't be able to sell it in this market, short sale or no.
Maine is apparently not a "non-recourse" state which means your lenders can get deficiency judgments against you to make whole their losses.
You don't need a real estate agent you need something like a bankruptcy attorney IMO.
posted by mrt at 7:57 AM on April 15, 2009
This sounds like irresponsible advice but the world has changed from 4 years ago and you are one of millions in similar situation. That your house needs work to be livable strongly implies you won't be able to sell it in this market, short sale or no.
Maine is apparently not a "non-recourse" state which means your lenders can get deficiency judgments against you to make whole their losses.
You don't need a real estate agent you need something like a bankruptcy attorney IMO.
posted by mrt at 7:57 AM on April 15, 2009
Response by poster: Marie Mon Dieu: thanks for the local info! I did call Coastal Enterprises and am feeling a little less overwhelmed after talking to the housing counselor there.
The impression I'm getting here is that it's best to get input from a few different realtors as to the marketability of the property (especially after they've *seen* it, not just from a market analysis) before getting too deep into the "OMGshortsalez!" mentality. Someone please feel free to correct me if my impression is off-base.
posted by anthom at 10:19 AM on April 15, 2009
The impression I'm getting here is that it's best to get input from a few different realtors as to the marketability of the property (especially after they've *seen* it, not just from a market analysis) before getting too deep into the "OMGshortsalez!" mentality. Someone please feel free to correct me if my impression is off-base.
posted by anthom at 10:19 AM on April 15, 2009
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The best way to minimize the hits you take is to find a good agent, pay them more, and get them to resolve the other hits. You should at least be willing to accept taking the hit of paying a professional what they deserve.
posted by Flood at 4:48 AM on April 15, 2009