short sale vs. foreclosure

[housepoor]

After going back and forth we decided to let our home go with our chaper 7. This wasn't an easy decision for us as we've put a lot of $ sweat and tears into this home but keeping it even without our other debt would be tough with dh's new reduced income. We've decided to simplify our lives and reduce stress which means the house goes. We tried to get the company BOA to reduce our mortgage to no avail and while they may do it after we file bankruptcy there is no guarantee and they will probably want us to reaffirm and I don't want to do that just in case. Ok so now for the question. Would it be better to do a short sale or foreclosure? How does a short sale even work? Our lawyers assistant mentioned a short sale and it seems that would look better on our credit but I don't know what is really involved. We are young and would like to buy a home again in this lifetime and my husband is afraid the foreclosure will prevent us from ever doing that. I know no matter what our credit will be shot for a long time but would it be better to have a short sale history vs a foreclosure 10 yrs down the road if we were trying to get a new home?

[nc73]

I would go for a foreclosure, you can buy again 3 years after. Tax consequences for a shortsale. Up to you though...

[Amy26]

If you're letting the home go in Chapter 7 then you don't have to do anything. You mark that you are going to surrender it in your petition and then the debt will be discharged. Then, you just have to wait for the bank to foreclose on the property. Your credit will not get hit with a foreclosure it will just say included in bankruptcy.

Short Sales can be beneficial for certain people. Basically, you have to have the home listed for sale for a long period of time without any offers/buyers before the mortgage company will even consider it. Then, you can work with a realtor to list your home as a short sale, meaning you cannot sell it for what you owe on it. Once you get an offer at the short sale price, you have to then get the mortgage company's approval. It gets even more complicated if you have a second mortgage with a different lender. Basically, the second lender can veto any decisions because generally in a short sale the second mortgage company would get nothing.

So, there is a difference between 1. just letting the home foreclose without bankruptcy 2. including it in a bankruptcy and 3. short selling it.

Does that help at all?

[housepoor]

If you're letting the home go in Chapter 7 then you don't have to do anything. You mark that you are going to surrender it in your petition and then the debt will be discharged. Then, you just have to wait for the bank to foreclose on the property. Your credit will not get hit with a foreclosure it will just say included in bankruptcy.

Short Sales can be beneficial for certain people. Basically, you have to have the home listed for sale for a long period of time without any offers/buyers before the mortgage company will even consider it. Then, you can work with a realtor to list your home as a short sale, meaning you cannot sell it for what you owe on it. Once you get an offer at the short sale price, you have to then get the mortgage company's approval. It gets even more complicated if you have a second mortgage with a different lender. Basically, the second lender can veto any decisions because generally in a short sale the second mortgage company would get nothing.

So, there is a difference between 1. just letting the home foreclose without bankruptcy 2. including it in a bankruptcy and 3. short selling it.

Does that help at all?

That does help thank you. I thought if we let it go with the bankruptcy it would list as foreclosure and bankruptcy and then we would be in credit score hell forever. I think we'll just do this the short sale sounds way too complicated and I sure don't want any tax complications.

[Amy26]

Nope, if you include it in your bankruptcy before it actually forecloses on its own then its just listed as "included in bankruptcy".

Yea I also forgot to mention that if you did a short sale then the amount that is "forgiven" typically has to be counted as income.

[hindsight]

[housepoor]

Thanks for the great information. My home is worth 1/2 of what we owe now. We had it appraised a little bit ago and I'm still in shock. So I certainly do not want a 1099 for over 100,000 dollars. Looks like my decision is made no short sale for me.

[mike258]

What happens of your mortgage is discharged and you do a short sale before the foreclosure?

Do you still get a 1099?

[Amy26]

Why would you want to go through the hassle of short selling when you have been relieved of the burden? I don't believe you would still get a 1099 because its discharged... but that's a lot of work to do on a discharged property... would be best just to wait for the foreclosure I think.

[mike258]

Why would you want to go through the hassle of short selling when you have been relieved of the burden? I don't believe you would still get a 1099 because its discharged... but that's a lot of work to do on a discharged property... would be best just to wait for the foreclosure I think.

Because I want to get the house out of my name ASAP. It could take a year or more for the house to be transferred back to the bank via a foreclosure and the 3 year countdown doesn't start until the house goes back to the bank. I also don't want to be responsible for homeowners insurance on an empty property.

There is already an offer into my bank for a short sale from an investor. It really hasn't been a hassle for me.

[Amy26]

I see... how long has the bank been deciding on it? And how far along a chapter 7 are you?

[mike258]

I see... how long as the bank been deciding on it? And how far along a chapter 7 are you?

The bank's had an offer for a month. My 60 days were up on 9/14/09 but the UST extended it to 11/13/09.