Posted on 11/19/2011 8:39:56 AM PST by ChocChipCookie
Are there any other reasons for the short sale of a house besides being underwater, a foreclosure, or some other negative financial situation?
You did good.
I've never experienced the problem, but Dave Ramsey says a short sale will also ding your credit, just not quite as much as foreclosure.
I think I have heard of this happening in estate cases where the surviving relatives want their $$ now.
It is really weird. About two years ago FM and FM changed their rules for insurance which excluded hay bale, log and dome homes. What they told me was that any bank/institution could assume the full risk and lend but they would not insure them.
We have been trying to refinance our dome since we can’t sell it, and are stuck with BofA because they hold the original loan and are required by law to refinance under the current programs. They maybe required but they are sure dragging their feet on the refi.
I mean what is the big deal, it’s a three bedroom, two bath, 2000 sq ft house with a four car garage and 500 sq ft office on 2.5 acres, that is just round on top.
Why is that so difficult.......
Glad you were successful in your endeavors.
But there were times, definitely times, when we were ready to raise the white flag of surrender. Learned to live lean and mean, do without, do it ourselves.
The "new reality" folks are dealing with is old hat to us.
Yeah, we like where we live and fortunately have the bucks to stay. Probably will have some equity in 7-10 years.
Seriously, the people here still celebrate traditional holidays and traditions with a level of enthusiasm I thought was outlawed in South Florida. It was liked moving back to America again. The kids actually like Arizona better than SoFlo which surprised me. I miss the culture, but the byproduct of crime and the transient environment? Not at all.
Cheers!
Self employed almost always have to sign personally on financing for business loans. Bank defaults on business loans can happen even if the business is sound due to loan requirements that require various covenants like minimum profits etc.
This means their personal residence is eventually subject to lien and levy if in technical default on business loan. Selling their residence could generate cash that would lower the business debt and get the bank off their back. During this recession, I personally experienced my credit sources have cut back on credit as well as required more payments. We are growing and need more working capital rather than less so a profitable business can find itself at risk of default when its business is growing too fast.
Divorce, maybe?
Yes,
Just had a client that REQUIRED more space, their house they lived in could not be added on to, they have twin daughters, and now are expecting twins again. They only have 2 bedrooms in their starter home. The both have good jobs, but with the drastic hits all homes have taken in value they are upside down.
They are buying another larger home (4 bedrooms) and are adding the difference to their new loan. Technically it is a short sale because the bank has to approve the amount of the sale since it will be below the amount owed, but there will be no shortage of funds at the closing table.
I’ll never know the story and would never ask them for the details, but I hadn’t considered medical bills. Our daughter went to the emergency room 2 months ago, spent 1 night in the hospital, and the total of all the bills, if, indeed, I’ve received them all, will come close to 6K, after insurance. They never even gave her an Advil for pain, and we just received a $300+ bill from the ER doc who never even physically touched her and couldn’t have possibly spent more than 20-30 minutes in the room with us, total. He’s already received 80% of his charge, and now wants the other 20% from us — and he earns a salary!!!
Whew. Got that off my chest. Just really meant to say that I can easily understand how massive medical bills would completely devastate a family, especially an older couple living mostly on retirement income.
I lived off my savings and eventually the very modest investments I had and kept up the mortgage payment along with utilities and car payment and nothing else until the $$ ran out; and that was after selling off some personal belongings and eating a diet of most store brand mac & cheese and ramen noodles for months. I had had the house on the market for what I owed on it but couldn’t get an offer for that price. Technically I was only slightly underwater and that was mostly due to a home equity line of credit, we’re only talking between 2 to 3K.
The townhouse I bought was modest, slightly under market in 2004 and I put 20% down and had a 5.25% interest rate on a conventional 30 year mortgage. The big mistake I made was taking out the 2nd mortgage – LOC that I used to pay off some other debts as a result of my divorce in 03 and doing some home improvements, but it seemed like a good idea at the time.
My real estate agent was great and really knew her stuff and worked with the two lenders on the short sale I eventually had to do. The primary mortgage holder (S&L) was great to work with but the big bank I had the LOC with was horrible. They didn’t want to approve the short sale until I had made three more payments (the one I missed, the current and the next month’s). I kept telling them “what part of I have no money and no income right now, zero, ziltch, nada don’t you understand”? They told me I should borrow the $$ from a family member or friend and they wouldn’t talk to me or consider a short sale until I did.
My agent went after them big time and went to a much higher up in the bank as that plus some other things they told me were completely untrue and illegal. The bank also told me that even if they approved they would only pay 3% commission to the agent that was in direct contradiction to the Mortgage Forgiveness Debt Relief Act – this was in 2009.
My agent finally got everything through after convincing the 2nd lender that if the house went into foreclosure, they’d get a lot less and have to wait a lot longer to get it and threatening to report their illegal mortgage collection practices. We went to settlement 2 days before the foreclosure and a week before Christmas! I moved in with a relative and eventually found a job, saved, bought a used car, got an apartment and have struggled back to some semblance of normalcy and financial soundness.
As for being taxed on the debt forgiveness; that was covered under the Mortgage Forgiveness Debt Relief Act and that provision has been extended through 2012.
I really didn’t want to go that route but at the time I had no other choice. Aside from a tax debt to the IRS that I'm paying off on an installment plan because of the tax bill I incurred as an independent contractor that I didn’t pay because I was making my mortgage payment, I’m debt free and plan to stay that way. :)
I was under the impression that it wasn’t at the discretion of the bank. I understood it’s IRS regs. Also, if one has a credit card balance forgiven, they likewise have to pay income tax on the forgiven amount.
“The Mortgage Forgiveness Debt Relief Act was introduced in Congress on September 25, 2007, and became law on December 20, 2007. This act offered relief to homeowners who would formerly owe taxes on forgiven mortgage debt after facing foreclosure. The act extends such relief for three years, applying to debts discharged in calendar year 2007 through 2009. (With the Emergency Economic Stabilization Act of 2008, this tax relief was extended another three years, covering debts discharged through calendar year 2012.)”
If a person had an approved short sale, the mortgage lender cannot issue a 1099 for debt forgiveness and there is no tax liability. That was the case with my short sale.
I don’t know about credit card balances. I did have to declare bankruptcy, not because I didn’t want to pay off my debts but because I had no other option or means at the time to do so. Under bankruptcy law, there is no tax liability for the debt forgiveness. Without bankruptcy, I don’t think many credit card companies ever forgive the debt, although they often sell the debt to third party debt collectors who are often ruthless in trying to collect the debt.
Some of them are rather unscrupulous in trying to collect; harassing phone calls, making threats, etc. It was because of my rather small cc debt being sold to third party collectors, some in foreign countries, that I was forced to declare bankruptcy. I was willing to work on a reasonable repayment plan with the companies I owed the debts to once I got back to work, but when I started getting nasty and harassing phone calls from these third party debt collectors; several times a day in some cases and being told that I “needed to borrow the money from family and friends” and found out that my family and friends were also getting harassing phone calls from unscrupulous collectors, sometimes late at night, that I said enough is enough.
One collector told me that since I “obviously had a cell phone” that I must be paying that bill so therefore I should be able to pay theirs as well as I obviously must have $$. But the truth was that the cell phone I had at the time was an extra one that belonged to a relative and was being billed and paid for by her. When I tried to explain that and explain that having access to a phone was necessary in looking for work that would enable me to pay off the debt, the collector started screaming and cursing at me and called me “a liar and a dead beat”. I promptly hung up on him and called a lawyer the very next day to start the bankruptcy. If the CC company had been willing to work with me and not sold my debt to a third party, I’d have probably paid off the debt by now or been well on my way to doing so.
A short sale is a foreclosure in the eyes of creditors
I believe you are wrong on this. A foreclosure is much worse as far as its effect on credit ratings and the ability to get a mortgage in the future than an approved short sale.
A short sale typically means the mortgage lender takes a loss but a much lesser loss than if the home owner simply walks away and the property goes into foreclosure. To qualify for a short sale, the home owner has to work with very closely with the lender, have a previous record of timely payments, actively work to sell the property for the highest amount possible and meet certain eligibility requirements, i.e, be out of work or unable to meet the payments and not qualify for a debt restructuring. All that has to happen in a foreclosure is the homeowner stops making payments and or abandons the property and simply walks away.
In a short sale, the lender get’s a substantial amount of the money owed, but in a foreclosure, the lender is stuck with the property and all the carrying costs and no matter what shape the property is left in, until the property eventually sells for; typically for much less than and for a longer period of time that what a short sale would bring.
Big difference.
Came through with home and credit rating intact by the grace of God.
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