Short Sale on investment property with Citi. Agent suggests stop making payments to show hardship. Should I?

Sam August 30, 2012 at 5:07am

Chanyaka...the biggest thing that needs to be done here is embracing reality. I could be mistaken, but it seems as though your situation is one of strategic default, which involves a calculated decision to default based on ones situation, but not a forced default. While there are times banks will approve short sales on loans that are current and there is little hardship, this is more the exception to the rule and it sounds like not going to happen in your case.

It sounds as though the bank is calling your bluff (I would if I were them). My opinion for what its worth, is that when faced with the prospect of the bank calling your bluff, you have to decide if the pain of keeping the property outweighs the worst case scenario pain of letting it go. Ask yourself, "if there was no such thing as a short sale, would I let the property go to foreclosure?" If you answer yes, then let the property go, default and try to short sell it minimizing the damage, and if they will not approve, then the property goes via foreclosure but it stops the bleeding so you can move on. If you cannot answer yes, then you have made the decision that the possible pain from default is greater then the pain to keep, so you suck it up and keep it. That is just my 2 cents, and in no way me telling you that you should default, just an example of what I consider to be the truest test that one can take to help in making their own educateddecision on what direction to go.

Like Bryant, I have personally made those difficult decisions on investment properties, and in my case, the long term pain to keep far outweighed the pain to let go, so they were going to foreclosure or short sale, but they were going. For me, the credit score pain was/is meaningless...without the financial bleeding, I do not need nor want credit.

Kimberley Kelly August 30, 2012 at 2:14am

I am in Palm Springs California. I can never council a short sale Seller to stop making payments. I can say that I have had zero luck getting short sales approved if they are current...although I hear over and over that this is possible. As to how much you have in savings..the Seller has to decide if they are willing to go to Foreclosure if the Lenders don't agree to a Short Sale. It's a business decision often..not just financial. Here in California, I have found my Lenders will often agree to a Short Sale rather than pushing the Seller to Foreclosure..even if there are assets. Makes more sense to them financially.

Bryant Tutas August 30, 2012 at 1:51am

Hi Chanakya. I have done short sales on investment properties where the borrower was current. In all cases the borrower had to "participate in the loss" by making a cash contribution to the investor. Some as much as $25,000. This particular borrower had over $1,000,000 in available funds.

Missing payments will mess up your credit, is no guarantee of a short sale approval and could cause you to be foreclosed on.

However, if continuing to make payments is harming you and your family's future AND it is certain that you will not be keeping the property, then why continue to throw good money after bad?

Being delinquent on your payments will certainly help to prove a hardship. Plus your loan will then become a non performing asset and the investor will have to do something with it. A short sale is almost always their best option. they will not foreclose out of spite. They will dispose of the non performing asset in the way that limits their loss the most. That's a short sale.

I dod short sales on 2 of my investment properties in 2010. I was delinquent and did not have to bring any money to closing. It was the best thing I had done in a long time. My only regret is that I didn't do the short sales sooner and that I had done short sales on my other properties instead of selling and bringing money to closing.

By trying to "hold on" I cost myself th9usands of dollars that could have been used elsewhere. My credit was damaged and is still damaged. But you know what?

It forced me to evaluate my complete financial picture. I went from owning 6 properties and almost a million dollars in debt to owning nothing but my home, which was bought using private financing after my short sales.

My home is half the size of the one I used to have. My autos are paid for. And I have a total of $100,000 in debt. This includes the mortgage on my house that has roughly 20% in equity.

My business is booming. I have zero financial stress and I'm getting ready to take a month off. That will be my third vacation this year after not having one in the last 15.

Moral of the story: Don't be a slave to your credit score and debt. Make a difficult decision now and get on with your NEW life.

I hope this helps.

Chanakya > Bryant Tutas August 30, 2012 at 5:52am

Thanks a lot Bryant for your response and it indeed is very helpful.

I am an individual and a homeowner and lived in this property before moved and turned it into an investment property. And the intent was never to turn it into an investment property but couldn't sell it at that time now. But we both had to move close to work to avoid 55 mile drive one way. The rent and mortgage payment on the house was close enough so bought a Townhouse which is now the primary house. I hope this additional info would give a better picture of my situation so you could make a more concrete suggestion.

To your point that the lender always asked for contribution, I heard and read that in California the lenders cannot ask for contribution or a promissory note to close a Short Sale. Is that not true?

If the bank asks for money, I give as much as I can afford but I don't have money to fill the complete gap (Loan to Value diff). The diff could be $80K, $100K or $120K depending on the sale.
Jeff Payne > Bryant Tutas August 30, 2012 at 3:41am

Bryant, this was the best response out of all of the responses on this topic. Credit does not define you !

I too have done plenty of investment short sales for my clients and many times it takes a cash payment from the client to get it done. I have done many with the borrower current on their payment... depends on the lender and the investor.

Not enough information on this post to make a decision. On the surface this person is making the payment and may not have a hardship until the tenant moves out.... again, not enough info
- Chanakya > Jeff Payne August 30, 2012 at 7:59am
  
  Thanks Jeff for your time & response .
  
  I also would like to believe that credit doesn't or shouldn't define a person. But unfortunately I am employed and quite a lot employers these days are doing background checks including credit checks. A friend of mine did a foreclosure on his primary house in South Cal and he was questioned by his prospect employer about the record in his credit report. My current employer also did a background check on me before I joined here.
  
  We are at a stage that people are getting fired based on their FaceBook or other social media profiles. That is the only concern I have.
  
  I am truly ignorant on RE and particularly SS process but have quite a lot of concerns about the consequences of my SS. Also, I don't know how much info I can put out on this forum. So please let me know the info that I should provide that helps offer a more tangible suggestion.
- Edwin Baloloy > Jeff Payne August 30, 2012 at 5:04am
  
  Jeff, Sorry -- I accidentally deleted my comment you responded to. I don't know why there isn't a reply button??
  
  You can msg me or call me on what's so "funny" and I'd be happy to share...there's more to it that I don't want to get into details on a msg board.

Chanakya August 29, 2012 at 9:58am

How much of savings that the bank sees as potential asset to deny SS? Say $40K or $60K or $100K? Not that I have but would really appreciate your feedback on what you have seen in your experience.

Chanakya August 29, 2012 at 9:38am

Just to add to the same...

Since I started the SS process, I received 3 letters from Citi.

1. Loan Mod denial.

Reason: "Citi Supplemental Modification requirements not met: loan must be in default or in imminent danger of default."

2. Loan Mod denial under HAMP.

Reason: We consider a number of factors in making credit decisions. In your case, we were unable to approve a HAMP loan modification of your mortgage terms because:
- Default Not Imminent: We are unable to offer you a Home Affordable Modification because you are current on your mortgage loan and after reviewing the financial information you provided us we have determined that you are not at risk of default because you have sufficient net income to pay your current mortgage payment.

3. Short Sale Denial under HAFA program.

Reason: We consider a number of factors in making credit decisions. In your case, we were unable to approve a short sale or deed-in-lieu under the government's HAFA program because:

- Default Not Imminent. We are unable to offer you a short sale or deed-in-lieu of foreclosure under the government's Home Affordable Foreclosure Alternative because you are current on your mortgage loan and after reviewing the financial information you provided us we have determined that you are not at risk of default because: You have the ability to pay your current mortgage payment using cash reserves or other assets.

Do you think any of the above made my agent to suggest on stop making payments? What these letters mean anyway?

Edwin Baloloy > Chanakya August 29, 2012 at 10:16am

If you've been declined and continue to make payments with over 3 months of reserves in the bank, do you really think you have a hardship?

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Short Sale on investment property with Citi. Agent suggests stop making payments to show hardship. Should I?

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