Has anyone done a successful short sale? I have LOTS of questions pls.

[leo_075]

Hi,

My husband and I are trying very hard to avoid not only foreclosure, but bankruptcy. We have had our home on the market for over a year without an offer and keeping it listed below the current market value. We are now in a position where we have to move on, we can't keep the house any longer. Our agent has an investor who is going to do a short sale with us. This is what he does for a living, but we are worried that it's not going to work. We have 2 mortgages, one for 91,000 and one for 51,000. He wants to offer the first mortgage complete payoff maybe less 1-2,000 and offer the 2nd mortgage only 2-3,000 on a 50,000 loan. He explained to us that it would work because if we filed bankruptcy OR foreclosed, they would get nothing. But I just can't see them accepting that little! This month is our first month skipping a payment because we're trying not to bankrupt and are moving to California to live with my parents so they can watch our 2 children while we both work full time so that we can pay our bills without bankruptcy. It seems like a good plan, but also seems that it could fall through before it closes. Anyone else do this? Thanks for any input.

AD.

[HHM]

First question, are the 1st and 2nd mortgages with different lending institutions. If yes, then you have a better than average shot at a short sale. Just make sure you read the contract carefully from the investor, you don't want your home tied up for an extended period of time while this deal gets worked out.

Some advice, if you can, keep the 1st mortgage current, but if you need the money, default on the 2nd. That might make it a bit easier to motivate the 2nd mortgage holder to accept a short sale, while at the same time, prevent the first from foreclosing. If you default on the 1st mortgage, doing a short sale of any kind becomes nearly impossible.

If the two mortgages are with the same lender, the short sale will be a tough sell.

Keep in mind, if you do a short sale, you will get a 1099 on the amount of forgiven debt by the 2nd Mortgage and may have to pay income tax on that money (and additional income tax on $47K would not be a small bill) (note, if you can prove to the IRS that you were insolvent at the time the debt was forgiven, you can avoid the income tax due, but realize, that you will have tax implications from a short sale).

[freshstart32]

We are going thru this same thing at this time. We were told by our investor to stop making our payments back in June so that way it would be easier to do a short sale and now after reading this comment from above:

If you default on the 1st mortgage, doing a short sale of any kind becomes nearly impossible

I am really worried. He said that if they have their choice between foreclosure and a short sale they will more than likely go with the short sale because it costs them less money than the foreclosure.

We have now missed June, July and Aug. payment. Oh and not to mention that the foreclosure review department has now started to hunt us down. They have started calling my work and my best friend/neighbor called me this morning to tell me they called her I am glad she knows what is going on. My investor says that he has sent them the papers on the short sale and that this is all part of it.......am I being screwed or what? This all just worries me to death because like you we want to avoid foreclosure but we can't afford the house and couldn't sell it either. We are upside down!!!!

[HHM]

Let's put this in perspective...missing payments on a mortgage are nearly as bad for your credit report as the foreclosure itself, at least in the near term. So long as you don't play on buying a house in the next 2-3 years, then trying to do a short sale and defaulting on some payments is not a bad strategy.

When the investor tells you that foreclosure is more expensive to the lender than doing a short sale, that statement is bit simplistic and ignores the complexity of the securitized mortgage market and the reselling of mortgages. Also, keep in the back of your mind, the investor can just as easily pick-up your house at the foreclosure auction, but the investor is trying to get your house without competition at the auction, but if it goes to auction, it is no skin off his back and he can probably still get a good deal at auction.

If you're trying to do a short sale where you screw over a 2nd mortgage holder, but try to keep the 1st mortgage holder whole...there is no real logic in defaulting on the first. If you default on the first and the mortgage note goes into collection and certainly once foreclosure actually begins, the lender has incurred its cost, so doing a short sale at that point is of no real advantage.

To complicate matters, the "real" owner of your note is probably some large fund that buys securities that are backed by your mortgage note and thousands of other mortgage notes. The people you deal with on the phone are typically only the loan servicing agent who have very limited authority to do anything. Thus, once you default on the 1st, they have to pull that note out of the portfolio package and re-package the note as lower grade paper.

[leo_075]

My two mortgages are with two different companies; ASC and GMAC is 2nd. I have personally already called both lenders to explain our situation and ASC sent us a short sale packet, but the 2nd, GMAC, has said they would 3 weeks ago and never did. I've been answering everytime they call to let them know again what we are doing. And no, we can't afford the payments on the first either. The business I was working for - a transcription company - closed it's doors so I've been working part time for a crappy wage until I could find something with more pay which is what has got us behind.

Also, how do you prove to the IRS that you were insolvent when they send a 1099? If the house were to go into foreclosure, wouldn't the lenders just come back and sue us and start garnishing our wages if we couldn't pay until we were forced to file bankruptcy?????


Thanks for the input, it helps to make it a little more clear. AD

[sandhall]

short sales sucess also depend on who holds the mortage like us we had a company but in end found out that it was a investment company that they paid when we made our payment and it would not allow short sales or mortage revamp. And sometimes if you were behind on payments then the foreclosure department has file which makes it very hard for a short sale.

[leo_075]

short sales sucess also depend on who holds the mortage like us we had a company but in end found out that it was a investment company that they paid when we made our payment and it would not allow short sales or mortage revamp. And sometimes if you were behind on payments then the foreclosure department has file which makes it very hard for a short sale.

This is the only month so far that we haven't made the payments. Both companies have information on their websites on how to go about a short sale, but like all mortgage companies, I'm sure they're still going to give us hell. They should, we're not paying our mortgage right now, but it sure makes for a stressful time when you don't really know what to expect and they don't want to give you a bit of information. I appreciate all the feedback you all are giving.

[supastar84]

Also, how do you prove to the IRS that you were insolvent when they send a 1099? If the house were to go into foreclosure, wouldn't the lenders just come back and sue us and start garnishing our wages if we couldn't pay until we were forced to file bankruptcy?????

Check out IRS Form 982. That is where you have to report to the IRS the extent to which you are insolvent. Beyond that, it seems like you would just need to have reasonable documents on file stating the values of your assets and liablilities, in the case that you get audited.

This insolvency exclusion is only applicable to the IRS. If a lender wants and has the ability (depending on your state) to come after you for a deficiency judgment, that'll be handled in court and the fact that you claimed to be insolvent to the IRS would be irrelevant.

I guess the first thing you'd want to do is check your state laws and figure out if the lender can try to get judgment on you after foreclosure.

[leo_075]

thanks for the info!