Well - getting the mortgage company involved CAN hurt your credit rating, that's why the recommendation. My sister did take a hit.

Expect 6 months of screwing around with the mortgage company - and they have NO incentive to work with you unless you start withholding payments.

 

Well, my dilemma is that mortgage company involvement or not, I can't make the payment with no incoming rent, so credit is going to suffer regardless. In my case, working with them is going to be the lesser of two evils. Sometimes you have to draw a line in the sand at where there's no ends to a mean. Such is life!

 

Just a quick update for anyone interested or following along...Looks like we're going for the short-sale!

Thoughts/suggestions/tips???

 

You want to find out if you will remain liable for the shortfall.

If you owe $200,000 and it sells for $150,000, is the bank going to put a lein or judgement against you for the $50,000 difference, are are they going to eat it? It could depend on the fine print in your loan papers.

You want to get it in writing that they will let you walk away, without any additional recourse against you.

A few short years ago, short sales were a nightmare for buyers, because the banks were dragging their feet and would take 6+ months to approve an offer and close the deal. So buyers began to avoid short sales. Nowadays, the banks will usually process the short sales efficiently, as they have had plenty of practice and the volumes have lessened.

FWIW, my former brother in law had 6 or so rental houses in the Sacto area and he got slaughtered when the market tanked. We don't talk anymore, but from what I've heard, he lost them all.

Best wishes sorting it out.

 

A short sale is just as damaging to your credit rating as a foreclosure, and anybody trying to tell you otherwise is doing you no favors. Kiss your credit bye bye for at least 5 years.

I see you have another thread going on possibly buying a new car. If you don't do it QUICK, you won't be able to do it on credit.

 

Short sale impact to credit completely depends on how your credit was before hand. 60-90-120 delinquent is as bad as it will get. Now if you have a 790 credit score, you'll probably end up around the high 600's. Short Sale is off you as far has HUD cares after 1 year, foreclosure can be up to 8. You will want to check on any remaining debt and see if the bank is eating it. If not, you'll need to workout payment terms - usually you can get this done pretty cheaply say 50K for 10 years at 3%. You'll also want to consider tax implications. At the end of 2012 the IRS will take any shorted debt as income, yup, income on your tax return..consider that. Just a note.

 

Thanks for the great tips and thoughts guys. Fortunately, all stuff I've thought of and considered.


Completely agree and have checked on all of this. It has been made PERFECTLY clear to me and my bank made sure I understand that I [I]will not[I] get anything in writing stating they won't come after me. The investors don't do it for anyone. She said if that's your concern, then you can forget getting a short-sale approved...they will not do it, period. My agent has also confirmed that extremely fewer investors are giving that in writing. Not many pursue the difference, but it depends on the loss. I was advised that historically if the loss is of an amount where they would come after you for the difference, then they just wouldn't approve the short-sale in the first place.

George, love ya to death, but have to disagree. I can find nothing in my homework or research to indicate this. Also, speaking from someone that has gone through a bankruptcy, these items are not as damaging to credit as one would think. I bought my current truck new in '02 on the coattails of a bankruptcy and qualified for the best Ford financing interest rate special they had running at the time. I know how to deal with the credit. Also, all my research indicates that with a short-sale, this may impose probelms in regards to buying a house within that two year peroid, but credit is otherwise left with very minor scarring at worst, and very recoverable.
BTW, my bankruptcy was the fallout of a divorce, no other reason. My first wife went and filed when we separated. I retained an attourny that advised me unless I can absorb ALL of our combined/joint debt, then the best thing I could do would be file with her, because every bit of it would fall on me when she filed alone.

Great input on the credit and delinquent relationship. Thus is our reason to short-sale. Right now, redit and payment history are perfect, thus the reason we are starting this process now. My mortgage company does not accept partial or reduced payments, even as a show of good faith on the loan. I was told if you can't make the full payment, don't send in anything; same outcome. As far as the taxes, I have no doubt you're correct, but there's not much I can do about it. Since I can't afford to shell out $800+ a month to cover the rent difference, this is my only option and fairly painless exit as far as I can see.

 

UPDATE

Well, just a quick update to close off this thread...if anyone still cares!

Started this thread on 21 November. The tennants were out of the house around 15 Dec and the house was immediately on the market for a short sale. An extremely long story short (hahahah...no pun intended), we closed on the house and recorded with the title company this past Friday. When the house went on the market, we had 14 offers inside of the first week. This entire timeline has been spent playing games with the mortgage company to settle the short sale and not waiting on a buyer. I'm thankful the buyer was patient enough to stick with the process. They got a good house for the money.

I spent ~$600 for a real estate attorney for a few hours and that money was worth its weight in gold. I learned a lot of things that I never knew about and would have never found out on my own. Certainly things the mortgage companies in CA don't want you to know about. For example...the mortgage company coming after you for any deliquency after short sale is over. Did you know you don't need this in writing from the mortgage company because that action is illegal in the state of CA?!?! Awesome. My attorney made sure I signed (or rather didn't sign) anything against my iterest and he sent them more than one letter ensuring they knew where to step.

Also...zero impact on my credit. No reporting at all; not even the initial late/missed payments. This is more luck of me being military more than anything, but I was protected from credit reporting via the Soldiers and Sailors Civil Relief Act. My attorney made darn sure they were aware of this. Yes, I'll be following my credit over the next year to ensure that holds true, but he assured me we have good recourse if they slip and report it. Had I not had this protection, he assured me that short sales were a two year ding with about the only impact being no mortgage company would give you a loan and not complete credit devistation.

As for the tenants...they walked on about $1,600. Unfortunately, not worth the effort, trouble, nor legal fees to try to recoup that amount. I stopped tallking to them and my attorney agreed to send them a nasty gram. They agreed to pay us $160 a month until the debt was settled. That started in March and so far so good...we'll see if it continues.

Hopefully we're done with the rental business. I just don't have the money to take the risk and didn't enjoy the stress accompanied with no returns.

Anyone got any questions about short sales, just let me know! Cavieat that with the fact that CA is completely different from any other state in the nation on real estate laws...get an attorney!

Thanks for all the input guys.

 

Glad you are out from under that burden.

 

The exact reasons why I want to stay away from ever renting. It's not for me and I can't handle the stress anymore. Thanks for sharing!

 

Glad it worked out for you, Galaxy.

IMO, you benefitted from the current political climate. Not only are becoming more pro-defaulting borrower and anti-lender, the banks know they have to play ball with the politicians.

DC signals the banks on how aggressive they can be on recourse, and if the bank behaves, DC will richly reward them in another areas. A bank gets crosswise with DC, and they will incur the wrath. Big banks are very powerful, but they are small fish compared to the federal government and want to stay out of its crosshairs. This has a large impact on bank policies, which are subject to change over time IMHO.

 

I didn't read your thread, but I'm surprised you weren't able to re-rent it out. Rent is high here, and booming. Doesn't mean you'll find a tentant that won't trash the place though just with the way they live (nasty).

 

My neighbor rents to military only families because he knows they usually pay their rent on time because if they don't, the CO will have a word with them. He currently owns 17 houses and is doing quite well.

 

I see you're not in Cali, which explains your statement. CA real estate is different from any other state in the nation. They have laws that don't even apply anywhere else due to the uniqueness of the market there. No, I could not rent. The best offer I recieved for rent was ~$600 dollars under what I was previously getting; which was already $300 a month in the hole for me. Why rent for $X when I can buy a short sale/foreclosed home and have a house payment $1,000 cheaper than renting??

True, very true. But there's a downside to military also. While the money is almost guaranteed, there are still tennants that'll tear your **** up AND you can guaratnee no one will be in a home long term. On average the house will turn over every 2-4 years. If you can deal with that, great; military IS the way to go. I'm not a landlord and want/needed long term for the security. To each his own though.

 

You did the right thing as long as you weren't planning on moving back into it when you retire. Somehow I get the impression you don't want to have another thing to do with California.