Short sale question - Posted by Mary (CA)

Posted by Mary (CA) on August 07, 2007 at 11:16:53:

Thank you both for the information.

Actually, as far as I know the owners’ credit is fine. They had house on craigslist for $423,000 but without an address - I only contacted them to find out address and when I did, I told them value was probably closer to $350k max. Surprisingly the lady e-mailed me back to ask why I thought that since their Feb 2007 appraisal said it was worth $450k.

I sent her the Zillow, homegains.com and comps from her neighborhood from the local MLS. She was a bit stunned I think.

I will pass your comments on to her. I gave her several options, but anyway you look at it, I doubt there’s an easy out since she needs the money to buy another house in San Jose.

Mary

Short sale question - Posted by Mary (CA)

Posted by Mary (CA) on August 05, 2007 at 18:44:33:

Hi all,

I talked to seller who is upside down and was wondering if she could do a short sale. She didn’t want to let it go to foreclosure.

My question is this: what effect does a short sale have on a person’s credit? (compared to sale not to foreclosure)

Mary
gtlcafe at yahoo dot com

Re: Short sale question - Posted by MatthewMStefanik

Posted by MatthewMStefanik on August 06, 2007 at 13:16:14:

The outcome of the short sale is the same as if it were to go to the auction and the lender lets it go for less, or if the lender takes it back and ends up selling it for less than what is owed, and that is they run the risk of having a deficiency judgment filed or getting a 1099 for the difference. So, if the homeowner is unable to sell the property or otherwise cure the default before the auction, they are no better off.

However, as far as the sellers credit is concerned, the fact that a foreclosure was filed will show up on their credit file either way because it is public record, a foreclosure sale at the auction will show up in their credit file because it is also public record, but a “short sale” will not show up on their credit file because it is not something that is recorded and, therefore, not public record. Also, as long as the lender accepts the short sale offer as satisfaction in full of the mortgage, what will be reported by them to the sellers credit file is an account that is paid and closed by the mortgagor, which is similar to paying off a credit card and then cancelling it. However, if the lender wants the borrower to sign a note for all or a portion of the deficiency and the borrower will not or cannot, then the lender may, within their rights, file a deficiency judgment against the borrower, which will report negatively on their credit file. But, what we do is petition the lender to forego the deficiency judgment, and rather send the borrower a 1099 for the difference. If the defaulted mortgage for which the borrower receives the deficiency judgment was purchase money and not a refi, cash out or heloc, then most likely they won’t have to pay taxes on that amount of the 1099 considering they did not profit from their house. If it was money they pulled out of the house and put in their pocket, then most likely they will have to pay taxes on that money. Advise the homeowner to consult with a CPA.

Depending on how much upside down the homeowner is, it probably won’t make for the best deal because trying to convince a lender, who probably knows nothing about the current state of your market, that home prices are falling down that much is often very difficult. For instance, if the homeowner owes $250k and the house is now probably worth a little over $200, then when you offer somewhere around $140k or less, it’s quite a discount to the lender, and one that probably won’t get accepted. I’m not saying it is impossible because it’s not, but the larger the discount the harder it is to get accepted. Make sure if you do decide to work on this deal, you make certain you have the seller sign a disclosure stating there is no guarantee you will be able to successfully negotiate a short sale and buy their house.

Best Wishes,
Matthew M. Stefanik

Re: Short sale question - Posted by Atlanta_bob

Posted by Atlanta_bob on August 06, 2007 at 11:44:01:

Your HomeOwner might want to contact their lender and give the house back to them as a Deed In Leiu of Foreclosure. Most lenders still require the HomeOwner to provide with cause/justification for deeding the house back to their lender (very similar to financial documentation needed for a short sale), but most lender realize it costs them (more than) $40K to process a foreclosure and re-sell he property - - so, the HomeOwner can circumvent those costs for their lender and (simply?) deed the house back to them.

At this point in their lives, their credit is probably poor already. A short sale or a Deed in Leiu of Foreclosure is a “hit” on their credit report, but certainly not as bad as a foreclosure on their credit report - - which could prevent them from obtaining financing to buy another house in the future(many years?). Just make sure the HomeOwner isn’t forced to sign a Promissory Note to their lender for any deficiency. That will not help that HomeOwner now nor in the near future.

Hope this helps.

Atlanta_bob

Re: Short sale question - Posted by will

Posted by will on August 10, 2007 at 15:31:15:

how bad will it hurt my credit and score