BK, short sale, loss of wages

[54321]

I filed for BK in 2005 and was discharged Feb of 2006. My atty was lousey, he won't return any of my calls or emails and so much of this is over my head.

Got in to a sucker mortgage in late 2003, I could not afford it BEFORE the arm adjusted so was forced to declare BK. Loan by Fremont Investment, so I guess all they did was look at my credit rating and not my ability to pay...the loan started adjusting during the BK, i continued to pay but still always behind. After the BK i still had a hard time, made 36k on a 130k loan. I should have never got the loan to begin with, now i know better. i signed a reafirm on the second just before i walked in to the bk hearing, i thought i had to sign this if i wanted to continue paying..(since my hopes were to stay in the house) no reaffirm on the first or my car. i only had one more payment on the car and the bank tried to repo? i paid them, well whatever... on my credit report, both mortg show as included in BK zero balance owed. both mrtg statements tell me the mortg is protected by bk court and they are only excercsing their rights etc.. against the property..i have tried to refi but always unsuccessful due to the declined value of the home. i finally figurued that i could perhaps get a modification so i applied on the first not the second, as soon as i filled out the paperwork and sent it in, then i found out i was forced in to taking a 50% wage cut, although temporary, i do not know for how long 3mos - 6 mos?. i just want to get rid of the house, i cannot take the stress any longer and the house needs a lot of work that i won;t ever be able to afford. I am single and no other income. i am trying to do a short sale. am obligated on the defficiancy? how does this affect my credit again? or can it still just be. IIB?? considering the market are banks more likely to cooperate in a short sell?

[JRScott]

If you sell it in a short sell with the primary and secondary agreeing to it then you would not owe a deficiency balance.

Not sure about the rest.

[54321]

well, that is partially good.

[HHM]

I have been researching this issue more lately.

The big question is the deficiency. The short sale, by itself, does not forgive the deficiency.You will enter into a contract with the lender for the short sale (which is a separate agreement from the Buyer-Seller contract to sell the home to the buyer). In this contract, the lender must agree to forgive the debt. The result, however, is the lender will issue you a 1099-C and you will need to address the deficiency balance on your taxes. These contracts are tricky, many realtor's who pitch these things do not understand them. Often times, the banks only agree to charge-off the balance; but that keeps it a collectible debt. Also, if any realtor says they can get the bank to agree to not issue a 1099, run...that is simply contrary to IRS regulations.

As part of my research, I have talked to several mortgage brokers, and they all agree, that short sales and foreclosures are equally bad. Granted, a short sale does not go into the public records section of your credit report, but everyone can tell by looking at your credit report that you did a short sale. Thus, under FHA/HUD, you would need to wait 3 years and under Fannie/Freddie you need to wait 5 years, regardless if you do a short sale or foreclosure. Note, private lenders can lend to you whenever you want, but to get the grade A federally insured mortgages, you need to wait the prescribed period.

My research has not changed my mind on this issue, from day one, there is absolutely no benefit to the seller for doing a short sale vs foreclosure.

[Tbornetun]

I agree. Short sales are being pushed a lot around here by over eager realtors trying to stay busy in a declining market.
One trustee from our area, who also practices as a bankruptcy attorney, tells her clients NEVER agree to a short sale. There is absolutely NO benefit to the debtor. It may in fact hurt you in the long run.

[54321]

so, its better to foreclose? simply put i cannot make the mortgage pmt.... both mortages were included in a previous bk and the debt discharged... the realtor is not doing the mitigation part, an agency has been hired to do that and in turn legal advice from an attorney... we've aready discussed the defficiancy issue and he said they will try to get the bank to agree to something, if not, hire a att afterwords and agree to pennies on the dollar... does this sound right?

[HHM]

Well, if you did not reaffirm the mortgages...there is no deficiency you have to worry about. (Also, realize, these so called mitigation companies and usually LLC's set up by the realtor's, the reason they do so is to avoid an overt conflict of interest, but make not mistake, they are making money both from the sale and the mitigation fee).

The issue for you is simply getting the bank to agree to the short sale. No matter what the deficiency, you are not liable because your personal liability was discharged in your BK. I guess in your specific case, i.e. post Bk short sale of a home on which you did not reaffirm the mortgages, it really does not matter whether you foreclose or short sale, but there is no benefit to you either way.

[TEW]

HHM
If you sell the house with out forclosure are you able to get another FHA loan with in 2 years. but if it is forclosed it's longer?

[HHM]

If you short sell, its the same 3 year guideline.

For FHA/HUD, the timeline is 3 years for both foreclosure and shortsale, for Frannie Mae and Freddie Mac, its 5 years.

[TEW]

So the only benefit to me is that the 3 year clock would start ticking sooner if I get a short sale.

[HHM]

So the only benefit to me is that the 3 year clock would start ticking sooner if I get a short sale.

yeah, pretty much.

[54321]

its okay that they make some $ off of me, i cannot handle this, the burden has been too much. to me, they are helping me get rid of a tremendous burden. my servicers are litton and asc and they have been impossible to work with. i do realize what you are saying, i am technically not benefitting by doing the short sale other than releiving myself of emotional stress. the paper work i received says 2 years for Freedie/Fannie.. i think the rules changed. i appreciate your feedback.

[Tbornetun]

Litton are _$$holes. I foreclosed with them 2.5 years ago. LOSERS, they started foreclosure while my husband was deployed on active duty with the Air Force. ILLEGAL!! Anyway, the attorney general in our state said there is nothing we could do because the bank is out of state. I don't believe that, but now we are actually thankful to be out of that house. We have just been approved for a VA loan and we have an offer on table for a house we absolutely love. The price is half of what it was worth 2 years ago. (We are paying $150,000 for a $300,000 home.) If and when this housing market comes back, we will finally have some equity. No more renting, I am sooo happy.

Also, if the debt was discharged in bankruptcy, walk away. Why stay and work hard for a short sale to go through. The debt was discharged! Done! Why should you be stressed out for someone else to make a buck?

[DaisyMae]

Did you, or did you not reaffirm those mortgages?

If you did not, why bother short selling- stay and let them foreclose, and live for free until then. If you did, and they foreclose, you may owe the IRS a big payment on the loss of the lender's mortgage income, and the lender could sue you also. There is no reason to participate in a short sale, none whatsoever- your credit is ruined anyway, but there remains a possible tax consequence. Another issue- a second mortgage on a house that has lost value? The second mortgage may now be unsecured debt...

[DaisyMae]

Well, there's another thing:

When you short sale, you have to move SOONER than if you let the house foreclose!!! Live free, drag it out, let the dust settle, and move on with your life. Short sales are much ado about nothing but hassle. The end result is the same.