Short Sale or not?

[RayMetz100]

You guys suggested I need to get out of my house months ago. I finally decided to short sell it. It's on the market for $269k with no nibbles after the first week. I owe $315k on it.

I still feel conflicted because my budget is so close to being able to make the payment. I can pay the house, food, transporation, and all my bills with $200 left over. But my other (predictably)random expenses each month usually add up to more than $200. I haven't used a credit card in over a year and I don't want to start now. so I'm short selling.

my payment was $2500 and I stopped making it this month. I'm planning to save $1500 for rent and/or settling and the other $1000 goes with my $200 to cover other expenses, and save more for the settling. My realtor says it should take around 6 months to have a buyer and the bank ready to settle.

I may owe $50k depending on how the settlement goes. Since my budget is so close to being able to make the payment, would it be better to just keep it and have a little credit card debt? that would be less than $50k debt. but it's also possible that I can settle for just the $1500 per month I'm saving and come out oweing nothing. in that cast the short sale is smart. what to do? I'm feeling very nervous about skipping the first payment in my life.

[mcfroggin]

I'm not sure if you would qualify, but the government just recently started a special "loan" that they are giving out to those having trouble making mortgage payments/near foreclosure. I wrote about it on my website if you want more information on it.

The current housing market is just so down right now that I hate to see you take such a huge loss. Have you considered trying to rent out your house and living in a cheaper rental home? Maybe even get a side business going? Are there any other options that don't put you in further debt?

[adstalker]

the problem with a short sale is even if you decide to it, the final decision is not up to you even if you find a willing buyer. Your lien holder (hopefully not bank of america) has to agree to it first

It also depends on how many liens you have on the property. Do you have only 1 mortgage or do you have a second lien? Often times with 2 loans with 2 different lenders, one lender might agree to the short sale and the other doesnt. As a former mortgage broker and real estate agent, I can tell you that a short sale is often a lengthy process and is not a garunteed way to get out of your financial obligations with the bank

[RayMetz100]

Are there any other options that don't put you in further debt?

That's the main question. I can keep the house, but it will likely put me in further debt. I'm right at the line. I'm likely to get a 5-10k bonus from work this september which would keep me going for a while, but I can't budget on that because some years it's 2k and who knows if I'll get let go before then.

It seems like I'm in debt $60k now. So if I can short sell it and owe $60k, then my budget will support paying off the $60k and surviving without further debt. There's also a good chance I can settle for less than $60k.

If I keep the home, I'm still in debt $60k plus have a fair chance of going further in debt. There's some chance that the home would increase in value, but that's dependant on the market.

Short selling removes the dependancy on the market. So far I'm convinced to keep trying short selling. If I do land the bonus in September, I could change my mind and catch up on the payments and only lose some late fees and my credit score. I think that's on ok gamble compared to going into more debt than I am already. I want to avoid more debt at all costs.... I think

[mcfroggin]

Have you looked into renting it out?

Have you looked into the new government loan for struggling homeowners?

What about renting a room out?

Have you started a home business to help with housing costs/taxes? It could make a sizeable difference.

There is a lot you haven't answered, and maybe haven't tried.

[RayMetz100]

called lender

I called the lender yesterday and talked to them. I told them the house is up for sale and that I don't plan on Making July's payment. They transfered me to their Home Preservation department and asked me to do loan modification paperwork. I will do it. I'm expecting I'll get denied or it will be less than $500 off and I'll still short sell, but it's the least I can do to try. Also I figure if they deny me, maybe in 3-4 months after no payments, they will reconsider and I'll already have the paperwork in place. This should set me up for either short selling or modifying. Either one of those is better than what I have now, which is a loan I can't pay without going into more debt.

[wincrasher]

The question I would be looking into is what the difference to your credit score between short sale and foreclosure. Is a short sale listed as a charge off and is that hit worse/better than just a straight up default? I suspect there is not much difference and you could decide from there.

Rules are that you are banned from FHA loans for 3 years (I think) from a foreclosure. That's probably your only route to a new home loan after either case I suspect.

You talk about walking away with debt. I guess I don't understand that. I thought the idea of the short sale is that the bank agrees to sell for less than you owe. You would not then carry a loan for the difference.

Now either way you may have a tax liability for any "forgiven" amount. Some states also allow banks to go after you years later to reclaim their losses.

Lots to think about.

[scot184]

Before skipping a payment, I'd get something in writing that says they won't hold the short sale against your credit. Isn't it better to stay current on your mortgage while short selling? I know it's a little backwards, but your credit will get destroyed if you miss payments. And if the lender says the loan wasn't "paid as agreed," you'll also get dinged hard.

Sounds like you still got a lot to think about...