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I am doing a short sale on my house. I already went through the loan modification process, which took two years and was successful ( I had great people at Aurora that I found through social media channels). However, the second lender, the holder of my HELOC, (Citi) refused to modify.
In the two years of the modification, I kept current, using up all my discretionary income and tapping my savings as my investments ebbed with the Great Whatever. However, in my neighborhood, even though the homes are near the ocean in a great community, many other families lost their homes or had to resort to short sales. A year ago, I was $100k underwater in a home for which I paid $769k.
No problem, I thought, because I can still hope for a recovery. I am an optimist.
But then four houses sold in my neighborhood last year. Every one of them had to do a short sale in order to get the house sold. The last actual closed sale was $505,000 for a house of comparable size. I realized it would take a decade of being house-poor to even hope to be whole. I don’t have a decade to spare.
Coupled with that, my daughter and son-in-law (with my sole birth grandchild) decided to move to London, and I realized I would be traveling much, much more and it didn’t make sense to own a home. I could rent and live part time in London, and begin saving again for retirement (ha ha– I told you I am an optimist),
I will spare you the emotion involved in making my decision. I love this house. But I am selling my home in a short sale so I can do what I also love– dabble in startups and travel. Here is what I have learned so far. Although each situation is different, most short sales follow the government’s HAFA program and there are commonalities.
1) If you have two loans, the first lender negotiates with the second lender and pays the Realtors’ commission.
2) it is up to the first lender to decide what to take
3) short sales take so long because lenders are inundated with them and they take a lot of work
4) if you stay current, the lender reports to the credit agency that you. ” paid as agreed, but less than the full amount of the loan.”
5) you can’t tell in advance how this report will hurt your credit, because every company you apply to for credit in the future runs your credit report through its own scoring model.The car dealer, the credit card company, and the mortgage lender look at your credit report differently.
Not only that, but a short sale hurts your credit more if your credit is good, because it stuns the creditors who don’t expect that from you:-) If your credit is already bad, they already have factored your risky behavior in.
6) Transunion (one of the three reporting agencies) doesn’t even use Fair Isaac (FICO). It uses something called the Vantage model, which is then translated to FICO.
7) you can reach human beings in customer service at all these places with the Dial 0 iPhone app:-)
8) You will need two years of tax forms, two current bank statements, a utility bill to show that the house is your primary residence, personal and business financial statements, an authorization form to allow the lender to look at your tax forms, and any number of other forms generated by realtors: your agency contract with the Realtor, your neighborhood comparable sales or a current appraisal. a sales contract, etc.
9) You could get hit for the difference between what you owe on the house and what it sells for as. “loan forgiveness,” which the IRS counts as income.
10) You might be eligible for a $3000 relocation allowance to move your things.
I will keep you posted as I take this journey.
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{ 3 comments… read them below or add one }
It is sad and a little shocking to hear that someone you know, who is by no stretch of imagination a financial deadbeat, is short-selling their home. It makes sense given your situation, of course, but it still feels so odd. As a Realtor, I’ve learned that lenders sometimes come back to you with a requirement to sign a note agreeing to repay for YY months to partially cover the loan deficit. They do this when they see that borrower defaulting on only their mortgage while paying all other obligations. It is upside-down to suggest this, but in such cases it actually may make sense to default on at least one other thing.
If they do, I will. I have been stashing cash. This is strategic for me.rn I’d have to keep the house another four years, to the tune of $60k a year,rnto even hope of getting even, and I would not be spending any time there. Itrnwas my summer home. I rent in Phoenix, because I got out of that market inrn2006. In my lifetime, I will not want to buy another home. No need, notrnenough freedom.
I hope they do not ask for a promissory note, but applaud you for not gaming the system any further if they do.