Foreclosure or sale. Need help!

[spooby72]

have researched this for hours and now have more questions than before I started...

We were just served a summons for our home that is about 5 months past due. This home was included in our chapter 7 bk discharged 11/05. We have no personal liability for any deficiency balance but it would be nice to possibly avoid the extra mark on the credit with a foreclosure.

Our home was appraised 2 years ago for 143,000...with area approximate appreciation of 3% for two years it should appraise around 152,000. Our priciple balance due (without interest, late fees, attorney fees, etc) is 137,500. House is two years old in fabulous condition and could be made sale ready in a day.

Since I would need to pay around 6% realtor fees, along with the past dues interest and fees, it doesn't seem worth it to try and sell the house other than to avoid the foreclosure mark on the credit report. We could live in the house another 5 months or so mortgage free and save the money.

Is it possible to negotiate with my lender to lower their payoff amount if I was to list the home for sale. If they did lower it and I was able to sell it, would I be able to keep the cash difference at closing?

[SinkingFast]

You can do what is called a "Short Sale". It's a rather involved and lengthy process. With a willing buyer already in place, you're possibly talking about 75-90 days to complete the transaction.

Short Sales typically aren't the area of the regular home buyer. Generally you're talking about an investor. Not someone who's gonna buy your home and live there, but someone who will buy your home on prospect to make money.

You Lender would probably go along with a Short Sale rather than have to go thru the process of a Foreclosure. Foreclosures are expensive for the Lender. They have to advertise, in our case, a Trustee had to be appointed to administer the sale, generally the Bank winds up buying back the property themselves, and then they have to market it and pay the real estate commission and all associated closing fees. So Short Sale works much better for the Lender than going thru Foreclosure.

First you have to get approval to do a Short Sale. Your Lender is gonna require a bunch of info from you. It's basically like applying for the loan, only in reverse. You write a letter of Hardship. A sob story about why you cannot afford to maintain your duty to pay the loan any longer. You'll have to send in current pay stubs, last year's income taxes, and whatever other docs the Lender requires. There is a down side here. Since you're providing all the docs to prove your insolvency, and those are the same types of info you gave to get the loan in the first place, you are giving the Lender all the hard evidence against you that you took the loan under fraudulent pretenses to begin with. That's just a note of caution for you.

Then the Short Sale has to be approved. If you have Private Mortgage Insurance, and the company you deal with about your mortgage is simply a Loan Servicer, there can be 3 companies involved in a Short Sale. PMI, Investor, and Loan Servicer. Each with one or more Depts of people representing the interests of their employer.

In our case, we didn't have PMI, so it's just the loan servicer and the investor. And, in our case, the Loan Servicer has the right to act on behalf of the investor. If we did all the Hardship stuff, the Loan Servicer was authorized to accept no less than 90% of what we currently owe. What we currently owe is approx $10K more than our principal balance. That's $10K of fees and legal costs.

Ok, so now let's say you've done all that other stuff and been approved for a Short Sale. You have to send a letter of authorization allowing the Lender to discuss your loan with whoever is buying you house. Most likely an investor, but maybe not. From that point on, you're out of the loop. The buyer deals directly with the Lender. The buyer must pay the minimum amount required to the Lender plus all associated Real Estate fees and documentation fees, and such. You cannot make a penny on the deal. The paperwork has to be done just so according to certain HUD guidelines. Any mistakes throw up a red flag to the Lender and the deal can fall thru. One penny unaccounted for, any amount of money that looks like it's going back to you, and the deal is done.

If you do have 5-6 months before the Lender puts your house up for auction on the Court House steps, you do have enough time to complete a Short Sale. There's a bunch of hoops to jump thru, but if you are successful, you will escape one black mark on your credit. Instead of being reported as Foreclosed or DIL, your Credit Reports will show Sold with a notation of the forgiven $$ amount. Not quite as good as Sold, Paid as Agreed, but much better than Foreclosed or DIL. And without the hit of Foreclosed or DIL too.

[debtisbad]

This is exactly why I do not want to own a home again. Too risky. Real estate commissions too high-no guarantee of property appreciating to cover RE commissions. We all get too caught up in the "pretty house" and do anything to try to buy it. Those days are over for me. I am going to try to do a short sale also, talked to my atty about it yesterday. Too many foreclosures around here.

[spooby72]

Thank you!

Thank you so much for the time you took to share your thoughts with me. Great information!

I am just not sure if all that hassle is worth it. I have already been excused from the debt. If I ride out the foreclosure process then I can atleast keep saving my payments and possibly get a "cash for keys" when I do leave.

Staying in my home may be worth $7 to $8,000 but then I will have the extra negative on my reports. Hmmmm.....

[Minnymouth]

You've already gotten the debt discharged in bankruptcy............... WHY go to the trouble of helping them sell it...............

Sit there, save some money for future expenses and let them do their OWN THING............

Will not affect your BK and credit score that much...... and a lot of less work.........

[SinkingFast]

If the debt is already discharged then don't worry with selling the house. The damage to your Credit is done and you CANNOT pocket any money on the house anyway.

Post BK Discharge and Short Sales, the property owner cannot profit from the sale. Any proceeds you would make from the sale of the house post discharge go direct to the Lender to offset their "losses" and legal fees.

Yes, you can live there rent free until it comes time to vacate prior to the Foreclosure Auction. Which, in most States, the property must be vacant for the Foreclosure to take place. But I wouldn't count on "cash for keys" were I you. More than likely, the Lender will have you evicted if you do not vacate voluntarily. Take the money you get from living rent free for a while, pocket that, and be glad for it. Prepare to move, hand over the keys nicely, and vacate the property in a fair manner when the time comes.

[debtisbad]

I am confused. I also had the debt included in my bk on a mortgage, which I am not going to reaffirm. So if I quit paying is it a foreclosure as well. It may just come down to how it is reported.

[SinkingFast]

OK,..........

You go thru BK with a mortgage that does not get reaffirmed. The debt from the mortgage is discharged. As long as you continue to make payments on time, the Lender will let you continue to live in the house, and will report to the CRA's that you are "Paying as Agreed" even tho you technically owe them nothing.

Loans that do not get reaffirmed remain under the terms of the original contract. Your original mortgage governs the terms of your payments, your interest rate, if you have an escrow to pay taxes and insurance, etc. That has been defined by legal opinion long ago in a BK Court far, far away.

And I misspoke about the profit from Sale earlier. If you sell the house yourself, post BK, you can keep up to the amount allowed as a Homestead exemption in the BK. Short Sale, where you sell the house for less than you owe, you cannot make one penny. Because the mortgage grantor has agreed to take less than you owe, you are not allowed to profit from the sale in anyway on a Short Sale.

If you sell your house post BK, regular marketing sale or Short Sale, there will be no Foreclosure reported on your Credit Report.

If you just up and stop making payments, to live in the house for free, to save money for the future, then the Lender will have to Foreclose on the house or you will have to sign over a Deed in Lieu of Foreclosure. They have to. Your name is still on the Deed/Title and the Lender cannot sell property that does not belong to them. In order to get the Deed/Title in their name, the Lender will have to Foreclose or you will have to offer the Lender a DIL.

So you can have Mortgage debt discharged in BK without the report of a Foreclosure or DIL showing on your Credit Report. BK and a Foreclosure or DIL is a double whammy on the Credit Report and both do show. Foreclosure shows for 7 years.

[djt]

I'm having the same dilemma. I may be landing a new job, have already discharged, and have included my house in the bankruptcy. If I stop making payments what exactly happens? I could be out of the house in as soon as 3 months. Will foreclosure show up on my credit report? Any advice?

Thanks

[SinkingFast]

If you need to move quick, and your market isn't the greatest, contact your Lender and ask about a Short Sale.

You'll have to apply. Provide current pay stubs, last years income taxes, a sob story Hardship letter about why you need to sell quick, but the Lender can approve that you can sell for less. The process can take from 2 weeks to a month or more. So go ahead and get that started.

Honestly, I'd avoid the Foreclosure if at all possible. Odd as it seems, BK is more easily overcome than Foreclosure is. You can get new credit and reestablish yourself with just a BK alone. No one will even consider giving you a loan on a house for years to come with a Foreclosure in you Credit History. At competitive interest rates that is.

Someone told me just a couple days ago that he had a Foreclosure in his past. It haunted him for years and took a long time to overcome.

[djt]

Another poster says that since i did not reaffirm my mortgage they cannot report anything except included in bk. I ill try to sell it first, but why go through the trouble of a short sale if I can just turn the house back over to them and it will still be reported as included in bk?

Thanks

[Minnymouth]

SF is correct, even if you did not reaffirm and then go thru the foreclosure process then both will show on your credit report..... a discharge in bankrutpcy and a foreclosure.....

Short sale is your best route if you can do it...........

[SinkingFast]

Another poster says that since i did not reaffirm my mortgage they cannot report anything except included in bk. I ill try to sell it first, but why go through the trouble of a short sale if I can just turn the house back over to them and it will still be reported as included in bk?

Thanks

You are correct, you are no longer responsible for the debt. It's been discharged. But a Foreclosure or a DIL will be a double whammy on your Credit. You'll have the BK and Foreclosure or DIL showing if that's the way you decide to go.

If you just let it go back to the Lender, they'll have to Foreclose or you'll have to sign over a Deed in Lieu to transfer the Deed/Title into the Lender's name. Without Foreclosure or DIL, the Lender cannot sell the property because the Deed/Title is in your name.

If you give a DIL or make the Lender go thru formal Foreclosure, either one will show on your Credit. Whereas, if you sell the property yourself, your Credit will show "Sold" for the house. If you do "Short Sale", your Credit Reports will show "Sold" with a deficient balance notation. Still much better for you down the road than Foreclosure would be.

Basically, if you sell the house yourself, you'll be able to get other credit and another mortgage much more quickly at competitive rates than if you go thru Foreclosure.

Just an example here for you. 2-3 years down the road, you have reestablished yourself with good credit and you're looking to get a mortgage. If you sell the house yourself, you'll pay 7.75%-8% interest on a mortgage where your neighbor who's never filed BK pays 7%-7.5%. If you go Foreclosure, you may be looking at 10% interest, or more, instead. Some of the low to no downpayment Federal programs (Fannie Mae, Freddie Mac) may not even consider you as a borrower with a Foreclosure. Also, if you go the Foreclosure route, you may need to bring a substantial downpayment to the table, 20% or more, to purchase a home where you won't if you're able to sell.

An attny will tell you it's no difference whether you let the house go back or sell it yourself. But the attny does not have to live with the consequences of his/her advice. Ultimately, the decision is up to you.

[Minnymouth]

SinkingFast is abosolutely correct,
Your attorney DOES NOT HAVE TO LIVE with the outcome of he advice he gives you................ so beware!!!

Understand what your attorney is advising you..... your the one that will pay the pauper.....

[djt]

So foreclosue will show up? DARN!!!!! I will try to sell, but I was hoping to save these 2 payments for a deposit I will have to make. I let my car back and a repo doesn't show. By the way I filed pro se and had very little difficulty using Form 7. A lawyer would definitely be helpful during a situation like this one.