I am a homeowner considering a short sale. I'll be upfront and say that there will not be a hardship until we close on the new house. My wife and I are purchasing a new house and in a normal market, we would be able to sell our condo for an amount that was adequate and move on with our lives. But, this is not a normal market so we will soon have 2 houses and 3 mortgages. We owe $192k on the condo and a trusted agent friend told us that we would be lucky to get $185k. When we close on the new house, we are considering putting up the condo for a short sale. Does this sound like the right move? There will be no way we can afford both houses and we cannot rent due to the HOA rental cap. Do I continue to pay the mortgage as long as I can while going through the short sale process? I hate feeling trapped like I feel right now.

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Hi Cody,

Welcome to SSS.com! Maybe I'm missing something, but if you are saying that you won't be able to afford both mortgages when you close on the new house, how will you be able to even get a mortgage on the new house? Lenders are being MUCH more picky on underwriting, so if there's not enough income to cover the mortgage on the condo, I just don't see how they will approve the loan on the new one. Did I miss something?
Eric,
Thanks for asking. I am a bit astonished myself but we are approved to carry both mortgages. The reality, though, is that we will not be able to afford both, especially when my wife has our baby. That is why I feel like this is a good move for us at this point in time. We are getting a great deal on a new, larger house but we will be trapped with our condo!
I'm sure someone else will jump in here, but I'll share my observation. I have seen a lender approve a short sale without the seller going delinquent on the mortgage. I didn't work with the lender, as the wife-side of the seller handled all the "negotiations". They stayed current on their mortgage the entire time, but needed to sell due to a job transfer out of the area. In the end, the lender approved it and they didn't require the seller to pay them back the roughly $30k shortfall from the short sale. Now, I don't know if your situation will qualify for a hardship, so it's a challenge to answer. You may be setting yourself up for a strategic default, once you close on the new place. You could always apply for the short sale, continue making payments as long as possible, but keep the bank informed of your efforts to sell, etc. Of course, keep your real estate agent completely informed, too, and even let them work with your lender, as well. Worst case scenario, besides a denial, is the lender asks you to sign a promissory note for any deficit as a result of the short sale.

It's too bad you can't rent your condo, as that would help in a big way.
Hi Cody,

Eric has left you a very solid response. I just want to add that you should seek legal advice before defaulting on your mortgage. What area are you in?
Thank you for the input. I certainly will consult a lawyer if necessary. I'm struggling with the best course of action, right now. There is a pride aspect of having perfect credit up to this point, never missing a payment or needing any help, and then now perhaps not paying a loan I signed up to pay. I'd gladly pay it if I could, but the market just doesn't look like it will allow it. I'll let you know what ends up happening. We live in Washington State near the Seattle area.
Cody- Who is the lender/lenders on the condo?
Wendy,
Both mortgages are owned by Bank of America right now. We started with Countrywide.
Cody - Another thought - to avoid the short sale - is to try to sell the condo and borrow the deficit to bring to closing.
Wendy,
Yes, thank you for this insight. I have thought about doing this. My real estate agent believes that we would be lucky to get $185k for our condo. We owe $191k so we are $6k in the hole. Then we have to pay the agents 6% (maybe 5% with nice agents), so that would be another $9k to $11k. (It would be nice if the government could subsidize the real estate agents in cases like this because that is a hefty charge to pay out of pocket.) Then the excise tax and other fees would mean we would have to borrow around $25k in the best case and maybe up to $35k in the worst case! I'm not sure we could afford to pay off that amount with interest in a timely/non-stressful fashion. It solves the pride issue, but puts us into further debt. The payments on $35k would probably be around $500 a month and would take about 12 years to pay off.
Not a normal market is not necessarily a hardship and might be tough to prove. Did you relocated to another area due to a job or loss of a job?
My advice would be to suck it up and find the money to pay the difference, afterall, didn't you just recieve a great discount on your new home since it is not a normal market? Pay the mortgage if you can, find the money to pay the difference if you can before going the short sale route
Jeff,
If only money grew on trees and "find[ing] the money to pay the difference" was that easy! Yes, we got a nice discount on the new home, but that doesn't translate to cash in our pockets. The first thing we are going to do is try to get the HOA to allow us to rent the unit. We don't have a "hardship" per se, but if we can't rent it, then we will simply foreclose or short sell and lower the property values even more. If there wasn't an HOA and this was just another house on the block, then we would just rent it out and there wouldn't be a problem. I think it is lame that the HOA would force us to foreclose in this case...either that or they would be forcing us to stay in the condo which opens up some civil liberty issues. I think it is in the HOA's best interest to let us rent it. They may see otherwise, though. We don't want to be permanent landlords and will sell it as soon as we can. We'll try to pitch a rent to own lease to the HOA board if we need to.
Understood, my thought is this, you have good credit and pride that you are dealing with. It seems to me that it would be much better to get rid of your 192K loan by borrowing the 25K to make up the difference IF the HOA won't let you rent the condo. Anyway that you go, there is going to be some sort or repercussion involved. Short sale could still be money out of your pocket and credit hit, foreclosure could be a judgement, selling and making up the difference is money out of your pocket. Not to sound cold but you most likely are not going to be able to slide clean out of your obligation. Have you thought about NOT buying the new home so that you don't put yourself into a tough situation?


Cody Vandermyn said:
Jeff,
If only money grew on trees and "find[ing] the money to pay the difference" was that easy! Yes, we got a nice discount on the new home, but that doesn't translate to cash in our pockets. The first thing we are going to do is try to get the HOA to allow us to rent the unit. We don't have a "hardship" per se, but if we can't rent it, then we will simply foreclose or short sell and lower the property values even more. If there wasn't an HOA and this was just another house on the block, then we would just rent it out and there wouldn't be a problem. I think it is lame that the HOA would force us to foreclose in this case...either that or they would be forcing us to stay in the condo which opens up some civil liberty issues. I think it is in the HOA's best interest to let us rent it. They may see otherwise, though. We don't want to be permanent landlords and will sell it as soon as we can. We'll try to pitch a rent to own lease to the HOA board if we need to.

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