Should I Foreclose or Short Sale My Home?
Question: Should I foreclose or short sale. Here is the situation. I bought a condo in Tampa, Florida in September 2005. This was my first real estate purchase and my primary residence until I transferred to Maryland for my job in July 2008. I have a first mortgage for $150k and a HELOC for $25k. The property has been short sale approved and there is a buyer that is going to purchase it for the price of $60k. We are ready to close but I need to pay all the delinquent HOA fees, late fees and attorney fees that have mounted up. I can not afford to pay the $3000 in late HOA fees to close on the short sale. Now, I am facing foreclosure. I have asked the HOA to waive the late fees and attorney fees so I can do a short sale but they are refusing.
Is it worth it to borrow the money from friends and family or should I foreclose or short sale?
Thank you,
Natasha
Answer: – This is a great question. My first though is, yeah, a short sale is always a better solution than a foreclosure. However, you need to make sure if you do borrow the money, that the bank, especially the second, agrees to a satisfaction and not a release of lien. If you are going to come out of pocket, you want to be sure no deficiency judgment can be filled against you. A satisfaction ensures this doesn’t happen.
By paying off the attorney’s and HOA fees, you are saving yourself money in the long run. There are a ton of things that are tied to your credit. The better your credit, the better interest rates you have, lower premiums, and more purchasing or leveraging power. Yes, a short sale will and has already hurt your credit, but can be fixed within a few years. A foreclosure on the other hand will stay there for several years. This means you will pay higher rates and more money if you ever finance anything. So if at all possible, avoid the auction.
Now, if you are married and plan on just using your spouses credit because the home was just in your name, or plan to buy everything with cash, then good for you. You found an alternative. If not, yeah it’s better to settle that debt. Just the fact of a possible judgment is worth the settlement because if the second files for a $25,000 judgment, then you’d be forced to file bankruptcy or borrow even more to settle.
Here is something to consider. With a short sale, no proceeds can go to the homeowner. I’m sure you know that. However, whomever is buying this property for $60k, sounds like they are getting a great deal. I mean you are in this home $175,000. Unless you took a HUGE hit when the market shifted or have a ton or repairs, this buyer is getting a great deal on this property. Even a 40% drop in value puts your home at $105,000.
I would be willing to bet that this buyer does not want to let this property go. If he does, I’d be interested in looking at it. Let the buyer know your situation and that you can’t afford the $3000 and have no choice but to foreclose. Or tell them you’ve got a few personal belongings he can purchase for $3000 which would allow the short sale to through. Whatever you are selling him doesn’t have to be worth $3000 either. It’s just worth $3000 to him. My hunch is that your buyer, because of the price he’s picking it up for, will be glad to help out.
So in response to your question, should I foreclose or short sale, you should definitely short sale as long as it’s a satisfaction.
Hope this has helped you and others who might be in a similar situation.
I did some research on “short sale” and I find that that’s not the route I want to go to anymore. I will not be able to pay the IRS the tax at the end of the year on “forgiveness debts.” I’ve had my houses on the market quite recently. It did no good. There was just too much competition out there.
I have not defaulted on any payments so far, but this month I will. I’ve also asked my tenants if they want to purchase the houses. They can’t afford it even if I carry the loans.
At this very moment I really don’t know what else to do. You said there were better alternatives. Will you please list those alternatives for me because it seems forclosure is where I’m heading.
It’s not the IRS you need to worry about when doing a short sale. See, the IRS puts out a form on irs.gov that will counteract any “forgiveness of debts” that you are talking about. Your main concern should be a deficiency judgment. But there is a way to stop that as well. Whomever is doing the short sale needs to ask for a satisfaction, meaning “paid in full”. The lender cannot come after the homeowner for a deficiency judgment. Usually this means the investor has to pay a little more for a satisfaction, but then you don’t have to worry about possible judgments.
Other alternatives are mentioned on our free reports section under Options of Homeowners in Foreclosure You’ve got 3 months to try to sell it on your own, refinance or whatever you want to do with the property. After you’ve been issued the notice of default, then I would look into doing a short sale.
We live in Southern California. I believe our home is in the phase of preforeclosure. We have been given what I assume is a NOD, it says we have until September 1st to catch up the 9,000 we owe in back payments or they will start foreclosure proceedings. We can not afford to keep this house. We owe $530,000 and the house is probably only worth about $480,000 if we could sell the property. We just want out, we haven’t even considered putting the house on the market because as everywhere, the houses are not selling. Our city is ranked in the top ten of foreclosure cities in the U.S. Our mortgages are 415,000 1st mortgage with EMC mortgage and a second for $115,000 to Beneficial. We haven’t even contacted the second lender because we just assumed it would be taken care of, but now I am finding that’s not necessarily the case. My question is, is it best to just let the house foreclose on or try to short sell it? If we decide to foreclose, should we contact the 2nd mortgage company? We haven’t contacted either of them as we just assumed we were 3 months behind, had got the NOD on the first mortgage and that they would start preceedings and we would get a sell date, move out etc. PLEASE HELP. We want to make the best decision so we don’t end up owing a lot on the foreclosure.
Even though the market is really bad I would still try to do a short sale. Also, a foreclosure is very damaging on your credit report. Remember when you do a short sale the homeowner walks away with no money and don’t even expect to get what you put in it. Any amount you owe will be considered payment in full.
We are thinking of foreclosing because the short sale just doesn’t seem to be working. Again, we bought a home in SW Florida in 2005 for 159,000. We have had the home on the market since February and started out at 174,000. We are down to 139,000 and still no lookers. Our realtor just keeps telling us to see every two week and if no lookers to drop again. We talked to the 1st lender and they said they might short sale depending on the price. They had their own appraiser in but won’t tell us what she said. Our realtor said around 135,00 but it keeps falling. We know we cannot afford to live here anymore and can’t keep up the payments. We are both working 2 jobs and have a 12 y/o daughter here. We are willing to go back to the midwest and rent for 3-4 years and then try to buy again after we get our credit back on track. Right now we are not late on our mortgage but know we cannot physically work each two jobs and maintain our life and also with our daughter. We are thinking of calling up the lenders and just walking away. Any help we could get on the repercussions of this would be greatly appreciated. We are so desparate for help. We are living so frugally and have depleted every bit of our savings. Please advise if you can. A foreclosure doesn’t even scare us anymore we are so desparate.
A short sale doesn’t seem to be working right now because no one knows you want out. All the investors wait for the NOD to be filed, then you will receive so many letters, phone calls, knocks on your door to drive you insane. You’ll have investors camping out on your doorstep just for the chance to do a short sale on your home. Since you are current, no one sees a problem. Try advertising it a different way, however, if you have a realtor, this may pose a challenge. You’ll need them to release the listing. Most investors don’t like paying an agent out of their profits for doing nothing. Another option is called a “deed in lieu foreclosure” or friendly foreclosure where you can give the property back to the lender. However, sometimes they won’t take it back. But it’s worth a try. Have you thought about renting it out just enough to pay the mortgage? Maybe the mortgage is to high. You could refinance with an interest only loan for 5 years to lower your payment and wait for the market to correct, then sell it. Whatever you do, it will be well worth your time to work hard to avoid the auction.