Replies to This Discussion

Permalink Reply by Steele V. Propp on June 29, 2010 at 4:32am

First of all, most of the so-called anti-deficiency states have very strict guidelines on who qualifies and who doesn't. In cases of refinance the key is usually that the refinance is only for the old mortgage, not for other purchases like cars, education, etc. No money can be used for anything else. And that amount can be pursued. So one needs to know the exact qualifications to be exempt.

Also, in these anti deficiency states we are seeing lenders more likely to agree to not pursuing the borrower. Lay out the facts, the lender can save some 20-30% over doing a foreclosure and on top of that, no deficiency.

We are hearing that many of these states are starting to add short sales and deed in lieu to the exempted status. Or at least consider it.

A lot of "ifs" go into this. Let's face it, there may be a good case for the foreclosure route these days. Heresy for a short sale agent but it may be the best alternative.

Steele

Permalink Reply by Kent Dills on June 29, 2010 at 4:48am

Kim,

Although I'm in a total recourse state (Texas) that doesn't have ANY LAWS (foreclosure or not) that support no Deficiency, I can rationalize why a California seller might opt for a short sale. Consider, that a short sale will be a win,win,win for buyer (who buys as a small discount off of fair market value - say 5 or 10 percent), for lender (who saves on average half the expense incurred in foreclosure - per Mortgage Bankers Assoc. - by doing short sale, and for seller (who avoids a foreclosure on their credit record). With a foreclosure on their record, sellers will have to wait about 3 (FHA), 5 (Fannie/Freddie), or 7 (other) years to purchase a subsequent home. With a short sale, you're looking - generally - at about half that wait time.

Bottom line: If you can convince seller's lender to accept short sale and foregive the right to Deficiency Judgment (in light of the above info), then I'd say you have done your seller client a real service (and their lender too)!

Permalink Reply by Kevin - Greenville, SC on June 29, 2010 at 5:20am

Several actually -

Not limited to the following.

1. A Short Sale would typically leave a smaller deficiency leaving a smaller amount to re-pay and make any potential tax burden smaller as you have mitigated the loss.

2. No Foreclosure on your credit report, according to Fair Isaac there is no reporting of a 'Short Sale'. A Foreclosure can affect your ability to get a job or your current job, security clearances.

3. Ability to obtain a mortgage again sooner at a better rate. Fannie has recently started to implement time frames that favor a borrower that works with them to avoid Foreclosure.

4. In most states a Foreclosure is a matter of public records a Short Sale is not.

Permalink Reply by Cami Pinsak on June 29, 2010 at 5:22am

I don't know if a short sale is better than a foreclosure in all cases. It depends on the kind of loan that is in default and the number of loans. The thought is that with a short sale, the turn around time to good credit is shorter. But again - that is individual. In CA, if they are purchase money loans, the sellers may generally be better of short selling. Of course, they would have to run that by their lawyer and CPA!

Permalink Reply by Margaret C. Taylor on June 29, 2010 at 8:43am

Deed in Lieu with forgiveness of debt is another option that is being discussed according to an article in the Washington Post. It states that Lenders are targeting specific borrowers and inviting them, with an incentive, to pursue a Deed in Lieu with debt forgiveness. Has anyone heard of this? Why would anyone want to do a Short Sale, if this is true? If it is true it may be for specific borrowers, and I'm thinking that those with second liens would not be eligible unless they can make those liens go away. Margaret C.

Permalink Reply by Lisa Lucas, CRS, CDPE on June 29, 2010 at 9:39am

Yes, that is correct. By circumventing the short sale process, the bank gets the home back without paying for a foreclosure. Even the short sale experts say that if a bank is willing to take a deed in lieu of foreclosure with debt forgiveness that is the best scenario for the borrower. Once, again, the Realtor is out of the picture even if the home is listed.
Personally, I would love to see the banks do this for everyone, sell off the inventory and let us start over with the remainder of homes on the market. Short sales can work, but they are so much headache and cause so much heartache that they are barely worth putting Buyer and Seller through the process...

Margaret C. Taylor said:

Deed in Lieu with forgiveness of debt is another option that is being discussed according to an article in the Washington Post. It states that Lenders are targeting specific borrowers and inviting them, with an incentive, to pursue a Deed in Lieu with debt forgiveness. Has anyone heard of this? Why would anyone want to do a Short Sale, if this is true? If it is true it may be for specific borrowers, and I'm thinking that those with second liens would not be eligible unless they can make those liens go away. Margaret C.