Wednesday, May 28, 2008

Investors Trying to Avoid Foreclosure w/ Short Sales? Unlikely

Question:
Frank- Good afternoon. My name is Eric. I just came across your blog on the web and wanted to see if there's anyway possible you can help me.
In September of 2006, a friend of mine and myself signed a contract on an NV home to be built in Leesburg, yes...I'm here in Northern Virginia! We closed on the house 6 months later and have been in possession of it ever since. We bought it for $750,000 and as of a couple week ago there was a short sale right next us on the market for $510,000- almost identical house.
We put 10% down and currently have 2 loans on the property- both through Wells Fargo
The property is rented, but between my partner and I, we still have a shortage of around $700 that we have to pay out each month.
One of our biggest concerns at this point even if a short sale was an option, is the implications after we close on the forgiven debt. Since it's an investment, there is no forgiveness on paying taxes on forgiven debt. Since there are 2 mortgages, I don't think deed in lieu is an option. And since both my partner and I have our own houses, we're afraid that the bank will come after us for the difference if we let it foreclose.
I've been in touch with a company called HomeAssure, that for $2500 claims that can get a short sales approved, but I'm just too skeptical of them at this point.
Bottom line is I have no where to turn and no idea what to do....it seems there's no way out and the walls are closing in quickly.
Uggghhh....
Any insight or help would be appreciated.....or, if you think there's something you could do to help I'd be more than happy to discuss options with you.
Thank you Sir
Eric

My Answer
Sorry Eric. I don't see it happening.

First of all, a Short Sale is irrelevant if it never sells, so don't compare your value to a possible Fake Listing.

Secondly, you kinda skipped something in your email. You are asking about the 1099 Phantom tax, which you will have to ask a tax advisor about, but I don't see why you would be exempt, but your bigger problem is you left off the huge requirement for short sales: You have to be near bankrupt and prove your financial ruins.

And lenders are FAR less likely to give leniency to investors, in part since they are more likely to hide funds. And if you have another house, they will expect you to refinance your current house to pay your debt obligations. They will suck you dry before giving you any write off.

Too many people think that Short Sales are an easy way to have the bank eat their losses.

And others think that just letting it go into foreclosure is a better option (I got an email regarding that last week from somebody that might be broke in 10 months, he just let them foreclose and is now crossing his fingers that they don't come after him for a deficiency judgment)

As for HomeAssure, I don't know them, but I doubt it. I have called these types of places before and many were scams. Maybe if you got some immediate local references. And if they accept the $2,500 to be placed in escrow and payable upon getting Short Sale approval, MAYBE, but be careful. But my guess is they only take money up front without a guarantee.

You should talk to a lawyer that specializes in this stuff. I am NOT a lawyer.

Hope I was able to shed some light and maybe give you some questions to ask if nothing else.

- Written by Frank Borges LL0SA- Broker FranklyRealty.com

5 comments:

Eric said...

Well that's not very encouraging.....if you were to offer up a next step, what would it be???

Is it even worth to attempt a short sale???

Thanks again- would love to keep in touch with you as it sounds like you certainly know your stuff-

Thanks

Eric

FRANK LL0SA Va Broker- BLOG.FranklyRealty.com said...

Yeah it isn't encouraging, since there is no magical answer where the bank eats $200k while you have $50k in the bank or home equity.

Banks aren't stupid. They will do a FULL financial background check before eating a loan.

People give banks a hard time for not making it easier on consumer that need help. The problem is, people will take advantage of them.

Everyone that is underwater will want free help. They want all the upside and then a bailout on the downside.

Again, if you are near bankruptcy that is another thing, but if you are just hurting, why should the bank eat your loss? Were you going to share with them the $200k upswing that you were hoping to make in 1 year?

Frank

Eric said...

Sorry...one other question.....

What about deed in lieu?? I've been told that the bank can't offer it, but you can offer to them??

I've also got 2 mortgages so heard that makes it more difficult.....


Thanks

FRANK LL0SA Va Broker- BLOG.FranklyRealty.com said...

Again, you haven't yet shown your distress.

Sure a Deed In Lieu saves them in foreclosure fees, but what, you want them to just take over the house and again eat the $200k loss? That is the crux here.

They might do it if you sign a promissory note for the $200,000 loss to be repaid over X years.

The Pink Elephant won't just go away, you have to be broke.

As for me knowing a lot. Here is another disclosure... I really don't. This stuff is changing very rapidly and there is VERY limited stuff online. So while I might know more than you, I don't even know 30% of it.

I encourage others that know more to post comments and questions.

Anonymous said...

Interesting thread... Eric, what was the outcome of your situation? I am interested as I am in similar situation.

-Ben.