Short Sale Question

[shipps]

What should one do when a short sale of their condo is denied by the bank?

 

Lets say a friend of mine owns a condo that they lease out. The condo is worth about $90k less than what it was purchased for. The owner..."my friend"...wants to rid themselves of the property and has gone through the short sale process. Day one that it was put on the market for short sale there was a bid on the house for about $60k less than what is on the current loan. This offer was more than expected actually. Months pass and the bank denies the short sale because they say the owner is not in financial distress.

 

This property has been a complete headache and financial burden for the owner and they do not want to continue owning this property. Obviously foreclosure isnt really an option due to the credit hit that they would take. It maybe that on paper the owners are not in financial distress but they basically want to get from under a terrible investment. Is there any next step in this situation or are they stuck here?

 

Thanks for any insight.

[Y2HH]

What should one do when a short sale of their condo is denied by the bank?

 

Lets say a friend of mine owns a condo that they lease out. The condo is worth about $90k less than what it was purchased for. The owner..."my friend"...wants to rid themselves of the property and has gone through the short sale process. Day one that it was put on the market for short sale there was a bid on the house for about $60k less than what is on the current loan. This offer was more than expected actually. Months pass and the bank denies the short sale because they say the owner is not in financial distress.

 

This property has been a complete headache and financial burden for the owner and they do not want to continue owning this property. Obviously foreclosure isnt really an option due to the credit hit that they would take. It maybe that on paper the owners are not in financial distress but they basically want to get from under a terrible investment. Is there any next step in this situation or are they stuck here?

 

Thanks for any insight.

 

I don't see anything they can really do if they're not in financial distress. Just because you don't like an investment you've made -- if you have other assets -- doesn't mean you get to wash it away and make others absorb the loss.

 

I see only three options here.

 

1) Keep it temporarily, hoping the market rebounds so they can sell it at closer to even.

 

2) Destroy their credit for a number of years and foreclose it.

 

3) Sell it and absorb the loss.

 

There is no bank on earth that's going to let you walk away from a debt obligation when they know you have money/other assets.

[shipps]

Is having the bank review the denial with another case manager worth it at all?

 

 

 

 

[Y2HH]

Is having the bank review the denial with another case manager worth it at all?

 

If they truly believe they're in financial distress, I'd go back. But they should know if they are or not without having to go through that.

 

When you do a short sale, you're essentially asking the lender to agree to absorb any loss on the original loan when they property sells. They'd only do this if they believe you 1) won't be able to make payments soon or 2) won't make the payments purposefully to go into foreclosure, destroying your credit or ability to buy another home anytime soon.

 

The bank is basically playing poker here, saying we know you have money and will continue making the payments, so why should we deal with you?

[Y2HH]

Oh, and I should tell you I'm not an expert in this field. This is just what I know from reading financial books and whatnot.

 

I know there are new government programs that assist with such things, but all of them require proof of financial hardship, and since it sounds like the bank is saying they're not in financial hardship, I really don't see a way out of this unless they use nuclear bomb options, such as purposefully destroying their credit and going through foreclosure. And it sounds like that's an option they wouldn't ever consider -- and the bank is betting on that.

[Chisoxfn]

Have them talk to someone who specializes in short sales. Bottom line, banks don't have much option. Also, the credit hit between a short sale and a foreclosure are both punitive in general so at the end of the day, the opportunity cost to have the house foreclosed on might be worth it.

 

It isn't like after a short sale you can immediately buy a house (the rules have tightened on this and I believe now it is 4 years removed..not sure what foreclosure is but if you have your friend talk to someone they might point you in the right direction and at least lay out the potential choices and the pro's / con's of each and thus put you in a place where your friend is comfortable making that decision).

[Texsox]

I wonder if it being an investment home also works against your friend. A foreclosure, if necessary, is much easier if it is not the primary residence. Has your friend thought about selling shares in the house and at least spread the pain. Someone coming in low might be interested. It would at least free up some cash to invest elsewhere.

 

What is the long term projection for value? Could the prices rebound in 2 years? 20 years?

[bigruss]

Working with a short sale expert attorney/agent is key. They will know way better how the process works and the tricks to getting things done.

 

Honestly, I wouldn't got to market without having an agreement with the bank on a price that they would accept for a short sale. Even then, I've seen deals fall apart but it saves months of headaches for both parties typically.

[shipps]

I wonder if it being an investment home also works against your friend. A foreclosure, if necessary, is much easier if it is not the primary residence. Has your friend thought about selling shares in the house and at least spread the pain. Someone coming in low might be interested. It would at least free up some cash to invest elsewhere.

 

What is the long term projection for value? Could the prices rebound in 2 years? 20 years?

 

It was purchased to be primary home but she started renting it out once she got married and bought a bigger home. The value of the condo isnt projected to rebound any time soon at all. At least 5 years from now maybe more until she can get her purchased proce.

 

Working with a short sale expert attorney/agent is key. They will know way better how the process works and the tricks to getting things done.

 

Honestly, I wouldn't got to market without having an agreement with the bank on a price that they would accept for a short sale. Even then, I've seen deals fall apart but it saves months of headaches for both parties typically.

 

She did not have an agreement with the bank on a certain price going into the market. Although the hang up doesnt seem to be the selling price as much as it is the lack of extreme financial hardship that the bank wants to see.

[Texsox]

It was purchased to be primary home but she started renting it out once she got married and bought a bigger home. The value of the condo isnt projected to rebound any time soon at all. At least 5 years from now maybe more until she can get her purchased proce.

 

 

 

She did not have an agreement with the bank on a certain price going into the market. Although the hang up doesnt seem to be the selling price as much as it is the lack of extreme financial hardship that the bank wants to see.

 

If nothing else works adjust your thinking that it is part of your retirement savings.

[bigruss]

It was purchased to be primary home but she started renting it out once she got married and bought a bigger home. The value of the condo isnt projected to rebound any time soon at all. At least 5 years from now maybe more until she can get her purchased proce.

 

 

 

She did not have an agreement with the bank on a certain price going into the market. Although the hang up doesnt seem to be the selling price as much as it is the lack of extreme financial hardship that the bank wants to see.

Part of that agreement would have been a review of her financial state to see if she qualified, essentially checking all the boxes before going to market and wasting both parties' time, just a good idea for anyone looking to go down that road.

[Chisoxfn]

Part of that agreement would have been a review of her financial state to see if she qualified, essentially checking all the boxes before going to market and wasting both parties' time, just a good idea for anyone looking to go down that road.

Agree with everything you have stated. Definitely helps to get the short-sale preapproved. That said, given current state, makes sense to get second opinion.

[shipps]

Part of that agreement would have been a review of her financial state to see if she qualified, essentially checking all the boxes before going to market and wasting both parties' time, just a good idea for anyone looking to go down that road.

 

She went through a lawyer group specializing in short sales and they never indicated to her that there would be any problems based on her financials throughout the process. They never said she had over income/assets until now with the denial. She was pretty shocked to find out that was the reason it was denied.

[bigruss]

She went through a lawyer group specializing in short sales and they never indicated to her that there would be any problems based on her financials throughout the process. They never said she had over income/assets until now with the denial. She was pretty shocked to find out that was the reason it was denied.

Ugh that sucks, sounds like standard procedure for a group like that to cover...

[shipps]

So the short sale lawyer is telling her that the short sale was denied because her credit score was to high (in the 800's) and it was an FHA loan (she was first time home buyer) so those are harder to get approved for short sales.

 

He suggested that she wait a few months and try for short sale again. I cant tell whether or not this lawyer is offering her sound advice or is aggressive enough with the bank. From what I read you cant take no for answer when trying to negotiate a short sale with the bank and these guys seem very passive by what she is telling me.

[Texsox]

I'm trying to type this without sounding like a dick.

 

If someone could get a short sale with their credit in the 800s, who wouldn't get a short sale? Seriously, you want the bank to absorb a $50,000 loss on your investment. I tend to believe the lawyer. If you loaned the money would you take the loss?

[shipps]

I'm trying to type this without sounding like a dick.

 

If someone could get a short sale with their credit in the 800s, who wouldn't get a short sale? Seriously, you want the bank to absorb a $50,000 loss on your investment. I tend to believe the lawyer. If you loaned the money would you take the loss?

 

LOL I hear ya. But it seems like a lot of cases with short sales people are able to get them approved because the property wound up being worth less than half of what it was sold for. Especially during that time period when the housing market crashed. She bought the unit in 2009 and within 6 months the property was worth less than half...that quick. Of course some will say tough luck you are still stuck with it but if there is any possibility to get from under a situation like that it would only be beneficial financially it doesn't hurt to try. Banks are often willing to work with these cases but each is different.

 

But whichever way you look at it it looks as though she will be stuck with this property for some time.

[Texsox]

The foreclosure problem was the homeowners could not make the payments. The mortgages had balloons and at a certain point the payments were too much and the borrower was defaulting on the loan. In those cases it was better for everyone for the banks to accept a smaller loss than having to foreclose and deal with all that. In this case the payments in all likelihood can, and will, be made. The other mitigating circumstance is y'all are choosing not to live in the house. If she was still living in the house, there isn't a problem for anyone.

 

I agree if you can get the bank to gift you the difference, go for it. But I don't think your lawyers are being dishonest on their opinion. There really isn't a compelling reason for the bank to take the loss. If I was a shareholder in the bank, I'd be screaming if they did.

 

On a side note, would you mind loaning me $10,000? My plan is to pay you back $5,000 and for you to forgive the balance.

 

One other thought. With her credit in the 800s, I wonder how far it would fall if you did default? That could be a hit worth taking for $50k. A mid 600 credit rating is survivable if she trusts you will be married for the next decade or two.

[shipps]

The foreclosure problem was the homeowners could not make the payments. The mortgages had balloons and at a certain point the payments were too much and the borrower was defaulting on the loan. In those cases it was better for everyone for the banks to accept a smaller loss than having to foreclose and deal with all that. In this case the payments in all likelihood can, and will, be made. The other mitigating circumstance is y'all are choosing not to live in the house. If she was still living in the house, there isn't a problem for anyone.

 

I agree if you can get the bank to gift you the difference, go for it. But I don't think your lawyers are being dishonest on their opinion. There really isn't a compelling reason for the bank to take the loss. If I was a shareholder in the bank, I'd be screaming if they did.

 

On a side note, would you mind loaning me $10,000? My plan is to pay you back $5,000 and for you to forgive the balance.

 

One other thought. With her credit in the 800s, I wonder how far it would fall if you did default? That could be a hit worth taking for $50k. A mid 600 credit rating is survivable if she trusts you will be married for the next decade or two.

 

I think that is something she has considered. Plus she is actually really good with money outside of this huge misstep. She would probably build her credit faster than the average person, if thats possible.

 

 

 

 

 

[Chisoxfn]

So the short sale lawyer is telling her that the short sale was denied because her credit score was to high (in the 800's) and it was an FHA loan (she was first time home buyer) so those are harder to get approved for short sales.

 

He suggested that she wait a few months and try for short sale again. I cant tell whether or not this lawyer is offering her sound advice or is aggressive enough with the bank. From what I read you cant take no for answer when trying to negotiate a short sale with the bank and these guys seem very passive by what she is telling me.

Second opinion. Find someone else. The banks will do everything they can to try and milk money out of a person. It is what they do. You have to have someone who is going to be aggressive. When push comes to shove, they have no right at any of your other assets, etc. All they see is a person with a solid score and other assets and they say, we can get more money from them...but from a legal perspective, they aren't entitled to any of it. I realize people struggle with this fact and want to pay back their debts, but look at the real estate industry and you'll see tons and tons of companies who structure themselves purely so they are isolated and can walk away from bad investments. You have to do what is in the best interest of you when working with a bank. These loans have risks and the banks underwrite them accordingly with risk margins, etc...they know some people will walk away and as long as you are honest with them in the underwriting process, my opinion is, you need to look out for your interests, not the banks.

 

And from an FHA perspective, people pay even more in fees on an FHA loan which are supposed to cover the higher default risk anyway. I would get advice from another party (worse thing they do is come back to you with the same answer and none of them should be getting compensated unless action happens).

[Chisoxfn]

I'm trying to type this without sounding like a dick.

 

If someone could get a short sale with their credit in the 800s, who wouldn't get a short sale? Seriously, you want the bank to absorb a $50,000 loss on your investment. I tend to believe the lawyer. If you loaned the money would you take the loss?

The bank has no rights to anything but the house. The loan agreement says you either make payments or they can take the house as collateral. The bank has no right to anything else. Either they agree to a short sale, renegotiate the debt, or you walk away and let them foreclose. End of the day, the ball is in there court and the onus is on them. The homeowner has the advantage and the loans were designed that way. Right wrong or indifferent, banks underwrite deals knowing they will lose money and some homes will be foreclosed on. On an FHA deal, it is even higher risk and thus they are compensated more because of that.

 

After a short sale you can't buy a house right away (unless you pay an absurd interest rate) so it isn't like the person who walks away from the house is making out like a bandit (they lost the equity they put in) but at the same time, when they entered into the agreement, they always have had the option to walk away and lose the house. It isn't like they entered into the deal with the intention to welch.

 

Note: Please note, my opinion differs if you lied when the loan was underwritten (i.e., fake income, etc).

[Chisoxfn]

The foreclosure problem was the homeowners could not make the payments. The mortgages had balloons and at a certain point the payments were too much and the borrower was defaulting on the loan. In those cases it was better for everyone for the banks to accept a smaller loss than having to foreclose and deal with all that. In this case the payments in all likelihood can, and will, be made. The other mitigating circumstance is y'all are choosing not to live in the house. If she was still living in the house, there isn't a problem for anyone.

 

I agree if you can get the bank to gift you the difference, go for it. But I don't think your lawyers are being dishonest on their opinion. There really isn't a compelling reason for the bank to take the loss. If I was a shareholder in the bank, I'd be screaming if they did.

 

On a side note, would you mind loaning me $10,000? My plan is to pay you back $5,000 and for you to forgive the balance.

 

One other thought. With her credit in the 800s, I wonder how far it would fall if you did default? That could be a hit worth taking for $50k. A mid 600 credit rating is survivable if she trusts you will be married for the next decade or two.

One thing to note, whomever owns the debt at this point, is probably not the bank that underwrote it and the debt from that vintage (i.e., 09) for the area has probably already been written off and the losses taken. And whatever credit hit that is taken, it will only effect the holder so the other significant other could get other debt in there name. I believe after 7 years everything is whiped from the credit history anyway (in terms of it won't be held against you anymore).

 

When the whole foreclosure situation happened, the problem was the banks underwrote loans people couldn't afford. Mortgages didn't necessarily have balloon payments, rather, the interest adjusted up or they were qualified on interest only and the underwriting standards to even validate the income, etc, were god awful to non-existent (blame the banks and individuals requesting the loan for that one, but banks were still the ones who created these "liar" loans). What should have happened is more banks should have seen the writing on the wall and negotiated more in good faith vs. not. They could have worked more with the buyers and prevented the glut of inventory that eventually came onto the market.

 

A person could have $10M sitting in the bank and they can still walk away from the loan (nothing in the standard mortgage contract that can change that and the bank has no right to that money...that said, you will pay income taxes on the forgiveness of the debt unless you can claim tax insolvency).

[shipps]

Second opinion. Find someone else. The banks will do everything they can to try and milk money out of a person. It is what they do. You have to have someone who is going to be aggressive. When push comes to shove, they have no right at any of your other assets, etc. All they see is a person with a solid score and other assets and they say, we can get more money from them...but from a legal perspective, they aren't entitled to any of it. I realize people struggle with this fact and want to pay back their debts, but look at the real estate industry and you'll see tons and tons of companies who structure themselves purely so they are isolated and can walk away from bad investments. You have to do what is in the best interest of you when working with a bank. These loans have risks and the banks underwrite them accordingly with risk margins, etc...they know some people will walk away and as long as you are honest with them in the underwriting process, my opinion is, you need to look out for your interests, not the banks.

 

And from an FHA perspective, people pay even more in fees on an FHA loan which are supposed to cover the higher default risk anyway. I would get advice from another party (worse thing they do is come back to you with the same answer and none of them should be getting compensated unless action happens).

 

I agree with this completely. I wonder if there is a limit to how many times you can try to get a short sale approved. Other than the ticking clock of foreclosure if you default on the payments of the loan.

[2nd_city_saint787]

I'm gonna hijack this thread with a somewhat similar question.

 

As some of you may remember, me and my family fell on some really hard times last year around this time. Due to back taxes we are indeed going to lose this house.

 

We just got a notice yesterday saying we have until July 22nd to come up with 110% of what the people bought it for. Won't know until tomorrow what that amount is.

 

Here is the thing. We are hoping to get a loan, BUT because this house is so run down we are thinking about ditching the whole sentimental thing and going after a foreclosed home.

 

2. Questions. 1. How quickly does the process usually take? 2. We have seen houses for "10k" but that can't be the total cost right? How much additional costs could there be?

 

[shipps]

I'm gonna hijack this thread with a somewhat similar question.

 

As some of you may remember, me and my family fell on some really hard times last year around this time. Due to back taxes we are indeed going to lose this house.

 

We just got a notice yesterday saying we have until July 22nd to come up with 110% of what the people bought it for. Won't know until tomorrow what that amount is.

 

Here is the thing. We are hoping to get a loan, BUT because this house is so run down we are thinking about ditching the whole sentimental thing and going after a foreclosed home.

 

2. Questions. 1. How quickly does the process usually take? 2. We have seen houses for "10k" but that can't be the total cost right? How much additional costs could there be?

 

The foreclosed homes are put up for auction. So it may be that a home sells for $10k as long as there is no investor that sees a reason to come along and swoop in and buy it for more.