Stop payments for short sale - Should I go for this option?

He mentioned that the house has to be on the market for atleast 90 days before they do DIL. I emailed hin to put that in paperr that if there are no satisfactory offers in next 2 months, he should do a DIL and waiting on his reply. My answer is that if they dont accept the offer that we are going to send, then they should accept the DIL after 2 months, else, I dont have a choice except walk away from the house. I am paying my mortgage and paying for an apartment that I am staying now. Cant afford to do that anymore.

Hi kingno,

So now you just need to wait for these two months. Hope you will get some good offers to sell the property and pay off the lenders.

Keep us posted :)

Hi Larry & Kingo,

Yea keep us posted!

Sure guys. I will post any development that happens. We are sending an offer across next week and keeping our fingers crosed. This board has a lot of knowledgeable people and I am glad that I found this group.

Thanks for the update. Where glad you came to our message board and look forward to helping in any way we can. :D

Kish,

You will have to pay income taxes on the amount of the 1099. Keep this in mind.

Here's my situation. I own a house in California which is 140 miles away from where I work. My monthly mortgage payments are killing me as I am renting an apartment as well not so close to work. I'm desperately in a need to get rid of my house and am considering DIL. I saw this thread and felt assured to see many concerns being answered.

Here's my situation
- I'm already 80K down on the house (purchase price minus current value)
- I have a second loan which is the Home Equity Line of Credit and is approx 66K. I got an appraisal done and consolidated my debt a year ago.
- I owe 20K in credit card debts.
- I have rented my place, but the rent barely covers one third of the cost. I still end up paying $1200 from my pocket every month.
- I have very mininal 401 K and some stocks and no cash in hand.

Please advice on the approach I should take:
- Short sale, DIL or foreclosure?
- How will short sale, DIL or foreclosure work with my first and second loan?
- Will it matter to the bank that the house is rented?
- Should I disclose to the bank that the house is rented?

I work in software and have a decent salary. I've made all my mortgage payments on time.

Any help on your part would be great.

Thanks in advance,
DIL-or-SS-F

Hi Dil-or-ssf,

Welcome to forums.

I think you should go for a sale of your property first and then if you find that you aren't getting through an usual sale, only then try to sell your property at a price lower than the balance you'll have to pay. What I'm trying to say is, it's a short sale only if you have to sell it at a price lower than the total loan balance on the house.So, if you get close to the balance then that's even better.

A short sale is better than a dil because it implies you tried to take some steps to pay the bank. Whereas a dil would mean you simply walk away without even making any effort. So this does affect your score slightly more than a short sale.

Since CA is a deficiency state, therefore if you go for a short sale, you need not pay the deficiency. But yes, the bank can charge off the unpaid debt because you do have 2 loans and not just one, so the bank is going to lose good amount of money. By the way, do you have the 2 loans with the same bank? the situation may be different in such a case.

"Will it matter to the bank that the house is rented? "
I don't think it will matter to the bank that you have rented the property as long as the bank keeps getting the money. Off course if you sell it or go for dil which i don't think will be a better option, then the tenants will have to leave.

"Should I disclose to the bank that the house is rented? "
It's better that you disclose the fact that your house is rented out.

Thanks

Hi James,

My 2 loans are with two separate banks. Will that make a difference?

I don't think I can make anything close to the balance of the house. The house was purchased at $245,000 and the current market price is $172,000. The market is really bad with many homes for sale in the area.

Please advice.

Thanks
Dil-or-ssf

Hi Dil-or-ssf,

It seems the market is too bad to offer you the price that can help you repay the loans. If you have 2 loans with different banks, then a short sale will not be that helpful especially when you are getting such a low price. This is because you need to pay the first lender and at least a part of the dues to the second lender.

Now, the first lender may not allow for a deed-in-lieu as he'll have to pay off the unpaid debt to the second lender. Moreover, they can't ask you for the deficiency also since CA is an anti-deficiency state. Yet, I think you should have a talk with both the banks and see what they are suggesting. Foreclosure can surely be avoided but this depends on the option that the banks are willing to accept.

Feel free to put down the options that the banks are going to suggest. Then you can come across more views which will help you to take a good decision.

Thanks.

Hello, Following the advise from the bank that the house has to be listed for sale for atleast 90 days before they do DIL, I listed it for 360K(Loan is 530K). I got 1 offer that is for 320K. and we submitted to that to the bank 3 weeks ago. Bank came back yesterday and counter offered for 335K. My buyer is still thinking and trying to make final decision. Meanwhile, I havent showed the house to anyone yet. If he is willing to buy, fine, if not I am going to have an openhouse and try to sell it by shortsale for bank agreed 335K, which will hit my credit by 80-100 points rather than letting it DIL and get a 250-300 point ding. My realtor was saying that he was surprised by the counter offer price and the faster response and was saying that this is really a good deal..
Assuming that the house is going in short sale....
I have a credit score of 820. Never missed my payments including the mortgage payments. I am still paying my mortgage on time as advised by the bank. Now given my scenario, how much time would it be before I can buy a house with 15-20% Down payment?
How does the short sale going to be shown on my credit records? How would my future lender interpreits it while giving the loan?

Welcome back kingno.

Your credit is excellent :!: If you haven't missed any payments till now and have the ability to put 15-20% Down payment to buy a new home then I don't understand why are you willing to go for short sale. By the way if you can make 20% Down payment and with your 820 score, you can even get approved for a mortgage loan. It should not have much problem. How much do you earn and how good is your DTI ratio?

Hello,
The location was very far from where I work. I have to commute 60 miles each way and spend nearly 3-4 hours on the road. We had a baby 3 weeks ago and there were no labor rooms nearby. I am the only one working now, for another 1 year. So, I need to work and stay close to the family. My current job demands me to be at work daily as I have lot of meetings. So, I have rented a place close to work and hospital. I cant pay for both places. My house price has dropped form 630 to 350 and I dont anticipate it to be back to those levels in the near future. So, want to get rid of it and probably buy something in another 1 and half to 2 years with some savings at a place near by to everything. Lession learned the hardway.
Its a family thing coupled with financial issues.

Hi Kingno,

Nice to see you here again!

I understand why you're trying to relocate. Now, as you have decided to go for a short sale and hopefully if it works out, your credit score will be affected no doubt. The short sale will show up on the credit report as "Settled Debt". However, as because you're in CA, and yours is a purchase mortgage, therefore the lender won't collect the deficiency.

Regarding when you can buy a new home after short sale, it should be about 2 years if you'd like to get a favorable mortgage loan for the purchase. I know you wouldn't like it but that's the fact. Under the new Fannie Mae guidelines, approved lenders require 2 years of seasoning prior to offering loan if you'd been through short sale.

Feel free to discuss further.

Regards,

Jessica

Hi Jessica,
Thanks for your reply. Mine is not a purchase mortgage. It was refinanced. But, the amount that Iowe the bank is less than purchase price. Does the non-deficiency still holds good?
Also, I wouldnt be paying taxes on the 1099 the bank issues for the difference by the mortgage forgiveness act..right? I spoke with a tax attorney and he said so. But, want to hear opinion from experts here as well.
Please let me know.
Thank you.