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Real Estate Short Sale Questions and Answers |
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Question: About short sales?
We own a house right now that we're going to do a short sale with.. it's worth way less than what we owe, but we have to sell it anyway.. Anywho, a friend of mine has already done a short sale recently (I mean purchased a house through a short sale) nearby. She also owns another home in another city. Now she's thinking of buying our house, and renting it out to us. What are the implications of purchasing another home (would be her 3rd.. she's not an investor or anything, or a flipper.. but bought them when they were really good prices). Anywho, she owns her own business, with a partner.. a travel agency. Apparently when she bought the 2nd house, that helped her out with tax deductions and such. But what about the 3rd house? I hope my question makes at least a bit of sense.. I'm asking this question for her, and I don't completely know about this stuff.. hopefully you can kind of see where I'm going with it. :o) Thanks in advance.Answer: With short sales in general, you would have to typically get ...
With short sales in general, you would have to typically get permission from your bank on the sale since they would ultimately be incurring the loss. If they say they won't do it, you are kind of out of luck in this specific regard.
If they do give the permission, you may have issues with making sure the sale is an arms length transaction (meaning it is completely independent). The bank may feel there is a conflict if you turn around and rent the home back from a friend.
Finally, your friend has to qualify for a new loan assuming that is the case. If the friend is paying cash, then this will not be a problem. However, if they are obtaining financing, it may be difficult in the current market to do so for a third home.
Good luck and I hope this helps.Answer: If she can afford the investment, why not? Having a short ...
If she can afford the investment, why not? Having a short sale is going to hurt your credit for a while, so having her rent you your own house sounds ideal. Maybe you can buy it back in a few years. BTW, owning a second, & third house & renting at least one of them, technically makes her an investor. =^)Question: Short sale vs Deed in Liue vs Foreclosure?
Im trying to find information on how bad of a hit my credit score will take for each of these option. I read that with a full foreclosure, my credit would take about a 250 point hit. (ouch) Does anyone know how bad a Short Sale or a Deed in Liue of Foreclosure hits your credit? Thanks.Answer: about 100 points
But - I just found out you probably ...
about 100 points
But - I just found out you probably won't be able to do a short sale if you have any substantial amount of money in savings. The bank will investigate that. That surprised me.Answer: They won't be as bad. The main thing is if you can do ...
They won't be as bad. The main thing is if you can do the short sale or deed in lieu and avoid some late mortgage payments.
If you miss 10 payments and then a foreclosure, your credit will probably end up somewhere below 500. But if you miss fewer than that and sell the property at a short sale, you're credit will show the loan as closed and paid, while there will be fewer missed payments leading up to that.
Same with the deed in lieu, although it looks worse than a short sale. But if can help you avoid some late payments and stop the foreclosure process a little earlier.
Depending on how you've been paying your other bills, your credit may be able to stay above 600 with a short sale or deed in lieu. But that assumes you pay car loans, student loans, and credit cards on time and just fell behind on the mortgage. If you're behind on everything else as well as the mortgage, a short sale or deed in lieu may keep you above 500, but that's small consolation.Answer: 1. "Does anyone know how...hits your credit?" ...
1. "Does anyone know how...hits your credit?" Depends on the length of delinquency among other things. But at the very least, 250 FICO score on foreclosures.
2. Short sale would save you because the account would be satisfied.
3. Deed in lieu has the same effect as foreclosure in terms of credit reports because it will say foreclosure arrangement or deed in lieu foreclosure. Will still take about 7 years to go away.
4. Conclusion: Short sale is the best route. Buy the book below for more info on how this all works at the auction.Question: Short Sale question regarding hardship & savings accounts?
If a person wants to do a short sale (owes more on the house than what he/she can sell it for) and approaches the bank, I've found out that the bank wants to know how much savings the person has. Why? Isn't the bottom line for the bank whether or not it would cost it more money to have the owner sell for less than they owe or to have to take it back in a foreclosure and then sell it themselves? Why would they care if they have say $40,000 in a savings account. It's not illegal for someone to just stop making payments on the house and walk away, is it?
I ask this because a woman called me last night and said she had a hardship (her husband died two months ago) and wanted to move to where her family was to take care of her. But, she had $40,000 in the bank. She had already contacted the bank and when she saw where they asked how much money she had, she knew she couldn't do a short sale, but she had already stopped making the payments.
how is it illegal? We don't have a debtors prison.
Mike - thank you. That makes sense, but what are the odds of a bank actually doing a judicial foreclosure. In California almost all foreclosures are really trustee sales to save the cost of taking back the property.Answer: google it
google itAnswer: It is illegal to stop making payments and walk away.
It is illegal to stop making payments and walk away.Answer: I recommend that she contact an attorney who specializes in ...
I recommend that she contact an attorney who specializes in real estate law. At least she has some money to pay legal sees.
I understand how important that money is for her to live on now that her husband has died, she probably has little or no income.
The attorney will advise her how best too protect that money.
If she is in a state that permits jucicial forclosures and deficiency judgments the bank could foreclose and get a deficiency judgment against her and take the $40,000 from her.
the bank will try to get everything that they can get.
She will need the attorney to protect her and her remaining money from the bank,
(edit to asker)
Yes in California where I live most foreclosures are non judicial and therefore a deficiency judgement is barred in those cases..
However as I understand the law in California the lender has the option to elect a judicial forclosure but because of the time and expense most lenders do not go that route.
So I would say that yes she is probably safe from a deficiency judgment in California because the lender is not likely to elect judicial foreclosure.
In general though I recommend that someone who is facing a foreclosue should get representaton by an attorney who specializes in real estate law.
There are some significant legal issues involved and it takes an attorney tp protect your rights, particularly in a foreclosure.
I think that it is particularly important that she protect that $40,000. She will probably need that money to live on.Answer: The bank made a contract with the person who owns the house ...
The bank made a contract with the person who owns the house and wants to recover the full value of the loan. Most individual home loans are recourse which means that the bank can go after the individual for more than just the house.
They can't put you in jail for failure to pay debt unless it is the government you owe money to.Answer: the reason the bank wants to know how much assets the person ...
the reason the bank wants to know how much assets the person has before approving a short sale is simple
the bank is not in the business to lose monies if they can avoid it, therefore if the person asking for a short sale has assets available to contribute to selling the house, in this case she could use the 40K to take pay off the difference between a sale price and the note, they want that information when making a decision as to short sale or foreclosureAnswer: It's pretty bold to assume that this lady has ...
It's pretty bold to assume that this lady has "little to no income" because she lost her husband.
And it is not "illegal" to stop making payments. It will trash her credit score and the bank will come after her, but she isn't facing criminal charges.
The bank wants to know about her ability to pay, and that is why they are interested in the savings account. If she has $40,000 in savings, she has the ability to pay. If she knew she couldn't do a short sale, why isn't she trying to sell the property and move on? I would assume in California that the lender could pursue obtaining that $40,000 - or whatever the loss to the lender is going to be, she should talk to a RE attorney before she lets this go into foreclosure.
The bottom line is that the bank will foreclose since she has stopped paying. From dealing with lenders, they really don't seem to care about foreclosing rather than allowing the short sale.Answer: The bank requires the buyer to be experiencing a FINANCIAL ...
The bank requires the buyer to be experiencing a FINANCIAL hardship in order to justify discounting the mortgage. With 40k in the bank, she's disqualified. Some people would take the money out of the bank. Ideally, she shouldn't keep this amount in the bank anyhow. You really have given up absolute control of access to your money. You are literally getting permission to get it each time you withdraw it. She can put the money in her sock drawer or invest it into something she doesn't own. They cant take what she doesn't have. She will need to live a new life of owning nothing in her name. She would need to start having everything owned by an entity she can control. Even that wont help if she does it incorrectly. Basically, if she goes to Vegas to sooth her grieving and loses it all then there is no longer 40k to get. So they get a judgement, it only attaches to what she owns in her name.
She could walk away from the property or reinstate the loan and find an investor to take over her payments. The deficiency judgment may or may not be pursued. She may or may not get a 1099 tax notice for the difference. It all depends on the bank.Question: Do I need to pay anything in a short sale transaction with the bank??
Answer: yes any amount that is left owing
yes any amount that is left owingAnswer: even if your lender allows it, which is going to be doutbul ...
even if your lender allows it, which is going to be doutbul you still have to even up with your lender. Failure to do so will most likely result in a deficiency judgment on you and if it is not collected or noncollectable they will notify the irs and you will have to pay income tax on that amount.Answer: Let me clear the air for u.
The reason you MIGHT have to ...
Let me clear the air for u.
The reason you MIGHT have to pay the difference is because your bank gave you the money for your house when you bought it, and now your just paying them back.
Since you didnt pay back the full amount but the gave you all that money when you bought your home the difference is considered "earned income". YOU WILL BE 1099 AND & MEANS YOU WILL PAY TAXES ON THE AMOUNT THE WRITE OFF.
Lets use an example:
Say your you owe 125,000.00 and you get an offer for 100,000. The net amount (after all fees are taken out(realtor fees, closing costs, etc,,) comes to say......90,000. You will be taxed for the difference. in this case u will be 1099 for 35,000.
To put this in prospective, lets say you gross 50k a year, well its like you made 85k that year (50k gross income + 35k difference). So the short sale is the way to go because the bank can 1099 for much more if it goes into foreclosure.
There are ways out of it! you might want to consult a CPA and claim insolvency, you could file bankruptcy.
You can always give your lender a call and ask them b4 u continue with your short sale.
Dont trust just any realtor! I have many realtors send me email or call me because every short sale is different. They mostly worry about getting their commission.
Feel free to send me an email if you need any other questions answered. I am also starting a new company to help people just like you for a very very low fee.
Take care.Question: Would a short sale be better over a foreclosure??
Is a short sale better than a foreclosure??Answer: Yes, because with foreclosure you owe whatever the ...
Yes, because with foreclosure you owe whatever the difference between the auction price and the balance of the loan is. With short sale the lender agrees to take the sale price as paid in full for the loan.Answer: It depends on your specific financial situation...but ...
It depends on your specific financial situation...but generally yes, and not for the reason Ebsogramma provides.
Short Sales can result in a 1099 taxable event or a deficiancy judgement; and lenders are not required to take the short sale as a paid-in-full price. Though many do, it's not required and just because a lender will allow a short sale - they may reserve the right to collect the "short" amount from the seller of the home.
Most people find comfort in doing a short sale versus going through foreclosure becuase 1) a short sale is less damaging to credit or 2) someone may be dealing with the headaches of working things out with the lender 3) the seller is able to move on with their life, even possibly relocate if desired.
Again, depending on your situaiton, a short sale may be better than foreclosure. But also it may not be. You need to talk with a qualified real estate professional regarding your specific situation to determine what is the proper course of action for you.Answer: Are you interested in saving your home?
Are you interested in saving your home?Answer: Yes...foreclosure is a lose lose situation for all parties. ...
Yes...foreclosure is a lose lose situation for all parties. It dings your credit score by about 400 points, and the cost for foreclosure is very expensive for the lenders, and they will already lose money since you can't make the payments.
By doing a short sale, everybody wins (make sure the lender agrees to the short sale). The lender doesn't want your house, and they can save a lot by not doing a foreclosure proceedings. You get the house out of your way, and it only dings your credit score by around 150 points.Answer: Yes, if you can do a short sale, the do it. It shows the ...
Yes, if you can do a short sale, the do it. It shows the loan as paid in full on your credit, which is much better than having a foreclosure. Especially after a bunch of late mortgage payments, any other creditor will look more kindly on a "paid in full" resolution than a "foreclosure."
Be careful of tax implications of a short sale, though. You may be responsible for paying taxes on the amount of debt forgiven through the sale. If the bank takes $10,000 less than what you owe, you may have to pay taxes on $10,000. However, this may not be the case all the time, so check the IRS rules before worrying too much about it. |
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