Posted by StevenS(CPA) on July 18, 2008 at 10:26:43:
I’m going to assume a few things before I get to your situation.
Is that even though you made the loan through a partnership or corporation, most likely, you did sign a personal guarantee because most banks would not make the loan without a PG on the loan.
Just because they are not reporting now doesn’t mean they will not report later.
90% of all the people who go into default tries to get them to not report it on their credit report. They get this one all day long and its rarely ever granted for a number of reasons.
So, if this is your situation I would suggest the following;
since you are not behind on your payments I would suggest you find someone to take over the property on a L/O for the rest of the construction and payments on the loan for ZERO down. I know you may want to make money out of this but considering your options its better to break even or a small loss rather than damage your credit and future borrowing power.
or you can look to flip it to a contractor at a small loss and borrow the balance if you have too.
I know none of these options is great but they are realistic and keeps your credit intact.
I know a lot of people who have damaged their credit in this market and it really isn’t worth the time or trouble trying to repair your credit once its damaged.
I got involved in a construction deal as a silent partner where my primary role was to obtain the construction loan.
Long story short… I am now left with a property that is underwater. The bank providing the construction loan has promised, or is obligated rather, to convert the loan to a traditional loan “Take-out loan”, but I will not be able to afford the payments.
I have a potential buyer of the property for a significantly lower price than the current loan. That being said, I am rather confident the potential buyers offer is better than the costs the bank would incur if they foreclosed and went through the process of reselling the property.
My question is: Can I negotiate a short sale with the bank where they promise not to put a ding on my credit?
I think that the bank is obligated to report such negative activity… but I wouldn’t make that statement as an absolute.
The other issue of how hard they will press you, or whether they will consent to the ss might be based on the balance of your financial position… in other words, what else do you have in the way of assets…?
Let’s say you have a pers res with 100K of equity, stocks, or other assets, then the asnwer is doubtful that they are going to let you walk away and not settle the score… either in cash, or a note payable.
So if you are truly tapped out having no other assets, then you may get by w/o paying the balance at all, but still have your credit damaged in the process. The answer may also lay in what state the property is located…? Whether it is a Judicial or non-judg fc state…? If judgicial, they are then filing a lawsuit anyway, if a foreclosure is emminent, and they will usually obtain a def judgment too… while they are at it. Non-judg states requires the lender to then file a lawsuit after the trustee sale is over… many don’t. So that part depends too…
What state are you in…? And who is the lender…? Possibly someone here has some experience with the same lender and can shed some light on things…
Re: Short Sale without a ding on my credit? - Posted by michaela-CA
Posted by michaela-CA on July 10, 2008 at 18:11:09:
You might do better to ask them for a concession that they won’t respond, if asked for update from CRA.
If they gave you in writing that they will not report negatives, then they’re basically giving you in writing that they’re willing to violate against the FCRA.
Giving you in writing that they wouldn’t respond when questioned (and you can initiate the CRA asking for validation) doesn’t seem the same kind of exposure.
Thank you for everyones responses thus far. This is frustrating experience and I hate contributing to the current mortgage crisis, but I am where I am.
A couple points and follow-up questions… if you have time.
-The property is in California. Which I believe is typically a non-jd state.
-The bank has not reported anything to CRA as my loan is still a construction loan & I am not late on payments.
Can the bank obtain a listing of all my assets? I am not completely tapped out, there is a little to go after.
2.What is the advantage for me doing a SS over foreclosure?
Thank you for the reply.
I guess it all depends on how much leverage I have. I would think a Banks desire to ding my credit would be minimal. A bank would receive no value out of hurting my credit.
I was not sure if there was some kind regulation or policy that banks must update a credit report if a short sale is executed.
CA is a non judicial foreclosure state for loans that are used in the initial (not refinance) purchase of an owner occupied property. I do not believe a construction loan falls under this category.
However, if it is a commercial construction loan it may be non-recourse, meaning that only the property itself is collateral. Check the loan documents. Did you sign a personal guarantee? Then they can go after your other assets for payment if they choose.
The difference between a SS and a foreclosure on your credit report will be one of magnitude. If you took out the loan in your own name, it will show up eventually. If the loan was in a company name and you have no personal guarantee, then it should not show up on your personal credit report.
procedures tell them to do. Their computer systems likely do automatic credit reporting on a monthly basis, so the fact that a credit line is closed but not paid off would normally flow through the systems unless manually changed (this is from the point of view of a guy who used to design and build software systems at banks like BofA and Wells). In an era of proactive credit reporting, the status of the account is reported with no human intervention. You will have to ask what their procedures on short sales are and see if they are going to report the settlement to the credit reporting agencies as a shortfall.
Re: In negotiations everything is on - Posted by Kristine-CA
Posted by Kristine-CA on July 10, 2008 at 21:32:51:
Your assuming that the bank has desires regarding anything to do with
you, your situation and/or your credit. They do not. Assuming the
lender is reporting to a CRA, there are standard procedures for
reporting debts that are settled. “Settling” is what a short sale is.
Do you know for certain that the lender is reporting the account
currently?