How to survive a short sale?
March 21, 2011 8:18 PM   Subscribe

Looking at a short sale and am apprehensive, what intelligent questions can I ask of my lender/ financial advisor?

    Current situation:
  • Getting married in a couple of months and we are eager to buy a home
  • We've started looking at homes on our own, mostly short sales and bank owned
  • We have appointments with a realtor and a financial planner at the end of the week
  • I purchased my condo at the peak of the market, and I currently owe about twice what it's worth
I found some good info in this question:
Is-a-short-sale-of-my-house-a-viable-option but I'm not quite as far along as the op in that post.

I'm in MN instead of DE, so I don't think I'll be as affected, tax-wise, by the short sale.

I looked at the hardship application that my lender offers, but I won't qualify for a loan modification. I'm current on my payments and am hoping to avoid foreclosure if at all possible. If I can afford it, I have considered trying to purchase a home before selling my condo, but I don't yet know if that will be possible.

I originally wanted to avoid a short sale, but I no longer think that's realistic since the condo probably will not come up in value anytime soon.

We're trying to soften the blow of the short sale as much as possible; what questions should I be asking of the financial planners and mortgage pros so that I can put my best foot forward when purchasing a new home in my situation?

Are there other resources I should be looking for who may be able to help me through this?

Thanks in advance,
posted by JackT to Work & Money (5 answers total) 2 users marked this as a favorite
Best answer: Should you buy first, then pursue the SS?

Typical time from offer to closing of SSs they've seen with this bank?

How does your lender determine what offers to accept, do they know? Could you get an appraisal and have lender pre-approve a SS value?

What will the bank report to the credit bureau?

If you are married before this closes, will it impact your mate's credit score if the house is just in your name?

Do you need an attorney to deal with your lender for you? What will the process of working with your bank be like?

Do they know sellers agents who are good at getting a SS to go through Bank smoothly?

Good luck!
posted by slidell at 1:14 AM on March 22, 2011 [1 favorite]

Best answer: I'm sorry to be answering a different question than the one you asked, but you don't express any doubt that the short sale would happen, which I interpret as you thinking it's a given. It's not. I can't find it now, but the New York Times ran a piece last fall citing instances where banks foreclosed on owners who wanted to conduct a short sale, often when the owners would have been just a few thousand dollars short. I recently received an offer that allowed me to sell a condo without cooperation from the bank, at a great loss I was just barely able to afford, when I already had a slightly lower offer that would have necessitated a short sale. I didn't hesitate in choosing the former. When we went in for the closing, the lawyer mentioned that he's had tons of short sales turned down.

So I wouldn't buy first (which was what I did), and I wouldn't rule out strategic default. If you think trying a short sale is right for you, absolutely apply for one, but absolutely have Plan B and possibly C.

As to your question, how hard I worked to formulate questions would depend on who was doing the answering. If it were a local bank, that would be one thing. I used Chase, which was too big and stupid to do anything. (This is not hyperbole.) I asked questions throughout the process, and got all different answers, most of which obviously weren't right.
posted by troywestfield at 6:34 AM on March 22, 2011 [1 favorite]

Response by poster: Thanks to you both. Slidell, there are definitely a couple of questions in your response that I hadn't thought of, and I hadn't seriously considered an attorney yet.

We are leaning toward a short sale because it seems like a less painful option than a deed in lieu or a default resulting in foreclosure. Neither one of us feels right with just walking away away from our obligation, but that might just be something we have to get over. There's also a feeling of wanting to get a fresh start together and being done with the condo altogether.

When I called my local credit union, they weren't much help, other than telling me that I wouldn't be able to purchase a home for at least 2-4 years after the short sale. I also talked to free housing counselors who basically narrowed the options down to a strategic default or a short sale.

Troy, may I ask how you got that offer? Did you advertise somewhere, or was it word of mouth?

Any thoughts on what to do with the difference between home value and what it will sell for? I don't think my lender will forgive any part of it, so I was looking at converting it to an unsecured loan.

posted by JackT at 3:39 PM on March 22, 2011

Any thoughts on what to do with the difference between home value and what it will sell for? I don't think my lender will forgive any part of it, so I was looking at converting it to an unsecured loan.

Wow. Interesting. I suppose if you can get an unsecured loan for that much money, just do it, pay down the mortgage, and do the sale as normal sale (keep your current mortgage lender out of the sale process). What you're describing doesn't sound like a short sale to me, unless maybe if it's that the unsecured loan comes from your current mortgagelender.

In short sales, often banks agree to take a portion of the loss. They figure, "okay, if we foreclosed, we could only sell this place for $90k. A short sale would mean that the owner (you) keeps paying their mortgage up to the last minute, the owner finds the buyer, the owner keeps the lawn mowed, maybe the place sells for $100k because it's not looking abandoned..." They let you short sale it at $100k instead of the $120k you owe because foreclosing on you costs more and would bring in a lower sales price. Maybe they try to go after you or ask you to cover 10k of that 20k loss they'll experience.

Have you been paying mortgage insurance, btw? I'm not sure how that would impact the bank's deliberations. Something to detemine and to discuss with your advisors.

Don't talk to the bank that holds your mortgage about your assets. Act broke whenever you talk to them (while being truthful). They will want you to cover the entire gap and in some states in the case of foreclosure, can sue you for it.
posted by slidell at 12:36 AM on March 24, 2011

Response by poster: I don't know that I can get the unsecured loan, I wasn't quite sure about that option. I do not pay mortgage insurance. I took a higher rate (.5% maybe?) instead.
posted by JackT at 7:38 PM on March 24, 2011

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