Thinking of doing a Short Sale on our House in California

[DandelionHouse]

We need to relocate due to illness in the family, house is currently upside down. Spoke to our lender and was advised to do a short sale on the property. First and 2nd mortgage is from the same lender. Payments are current (never been late) and haven't refinanced (no Cash-out). The property is our primary residence. What are the implications of doing a short sale in this situation? Do we need to talk to a tax advisor or real estate attorney?

[Nathan Fransen Esq.]

You definately should talk to your tax advisor or attorney to get specific advice for your situation. A short sale may be a good option for you and you should not have any balance owed to either lender at the end (although the lender may try to get you to agree to a repayment of some sort). Tax issues should be dealt with through the Mortgage Debt Relief Act of 2007 (google that for specifics). Hiring a lawyer, even to just review documents as you sign them would be an excellent insurance policy.

Good luck,

[faith]

Dandelion,
Welcome to this forum. Peace be with you and your family.


There are two options you can do to do a Short Sale:
1) Hiring a real estate agent
2)consult a real estate attorney, check their license online in State BAR Association to see if they are licensed to practice law.


One that is most required by the lender is to have your house listed for at least 60-90 days to a Real Estate agent, make sure you ask that agent if he has experienced doing Short Sale. You have to give a letter of authorization to your agent to talk to your lender to discuss the Short Sale negotiations and other important issues like there will be no deficiency judgment aginst you. Since you have the same lender for both loans it will be easy to negotiate with your lender. You have purchase money mortgage and never refinanced so you are protected under CA Section 580b.


In California if you have a Purchase Money Mortgage and never refinance there is an Anti Deficiency Judgment called California Section 580b meaning your lender can not pursue any deficiency judgment once the house forecloses or sold. If your home qualified as a principal residence and has purchase money mortgage then if you do Short Sale, the balance owed called deficiency judgment is covered under CA Section 580b.which states:

No deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the purchaser to complete his or her contract of sale, or under a deed of trust or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property or estate for years therein, or under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser.

Where both a chattel mortgage and a deed of trust or mortgage have been given to secure payment of the balance of the combined purchase price of both real and personal property, no deficiency judgment shall lie at any time under any one thereof if no deficiency judgment would lie under the deed of trust or mortgage on the real property or estate for years therein.

Your home must be your principal residence in which the you and family lives. It includes the conventional single family home, condominium or cooperative, a mobile home or a duplex. If the taxpayer has more than one residence, it is the home in which the taxpayer lives most of the time.


There's a lot of Short Sale Seller success in this forum and if you take time to read it may give you an idea of what to do. There's also a lot of attorneys in this forum, you can give them a call ask for a free consultation and follow your heart.


http://www.loansafe.org/forum/short-sale-outpost/


God bless and take care

[DandelionHouse]

Thank you very much for the advice.

[DandelionHouse]

Faith,

Thank you for the extensive information. I will update my situation on this forum from time to time, so it can be a use to other homeowners out there.

God bless you too and take care.

[playinthegame]

Thank You Faith for the valuable information.
We to have a Purchase Money Mortgage on our 1st w/ Wells Fargo Bank. And will be leaning toward the Short Sale road on our home. One concern I have is we have a second mortgage that we took out for a pool loan. This 2nd is secured by the property the of the 1st. Can anyone tell me what I will have to look out for by stopping payments on the 2nd along w/ the 1st?Thank You

[faith]

Originally Posted by playinthegame

Thank You Faith for the valuable information.

Originally Posted by playinthegame

We to have a Purchase Money Mortgage on our 1st w/ Wells Fargo Bank. And will be leaning toward the Short Sale road on our home. One concern I have is we have a second mortgage that we took out for a pool loan. This 2nd is secured by the property the of the 1st. Can anyone tell me what I will have to look out for by stopping payments on the 2nd along w/ the 1st?Thank You

Playinthegame,
Hello and welcome to this forum.

If you are delinquent on your first and second mortgage, your lender can foreclose on your house. Each state has their own foreclosure process, in general it takes 60 days to a year ½ to do it It also depends on the terms of your loan. The general rule is if your mortgage payments are not received within 5 months, the bank can proceed with the foreclosure process. The 2nd mortgage would be repaid after the first mortgage is paid in full. In fact, if the sale price is less than the value of the mortgages held against it, then in some states you could still owe an unsecured balance called a deficiency judgment.

In ffice:smarttags" />California if you have a Purchase Money Mortgage and never refinance there is an Anti Deficiency Judgment called lace w:st="on">Californialace> Section 580b meaning your lender can not pursue any deficiency judgment once the house forecloses or sold. fficeffice" />>>

Lenders and servicers does not want to foreclose on mortgages because it is very expensive If you call your lender and tell them the reason why you can no longer afford to pay your mortgage because of financial difficulty, lost of job, divorce, disability, no more overtime I know for sure that your lender will understand your situation and will most likely work with you to bring the loan current. You need to talk to your lender and be honest about the financial situation. They might be able to help you with your financial situation. You should contact the lender right away about meeting to discuss alternative payment arrangements.

If you are planning to do a Short Sale, you better act fast because home prices are going down, there's a lot of competition, and it's very difficult to negotiate with lenders now. Counrywide is better to deal with before Bank of America took over, The balance we owed to the 2nd mortgage was foriven, Bank of America DOES NOT FORGIVE BALANCE OWED PERIOD. They force you to sign a promissory note and if you don't sign the promissory note they will not approve the Short Sale. The PMI companies take to -o-o-o long for them to approve a Short Sale, they want sellers to sign a promissory note too.

However, you don't have to sign the promissory note, you can negotiate to settle by paying 10-30% of the balance owed on the 2nd mortgage. If you owe $100k, try to offer from the lowest percentage first 10%, if they do not accept it make the next offer to $15% etc. You can tell them that you will pay the promissory note once you have settled say $15,000, payable in 30 years and no interest. Have them put in writing that they will not pursue any deficiency judgment against you and that the promissory note and the sale of the house satisfies all your obligations and therefore you are released from any balane left.

That's why most homeowners rather walk away and foreclose. However, if you know what to do and you have a good Real Estate Agent to negotiate with your lender, you might close the deal with any lenders. And also if you have A RESPECTABLE GOOD LAWYER, who has expertise in Real Estate, Short Sale, Loan Modifiations who can negotiate the first and the 2nd for you, you might have a successful Short Sale. ,

Hope this helps.

Take care and God bless.

[playinthegame]

Thanks again for responding.
We live in Cali. and are upside down 330k + we have decided to stop making payments this month of July since I have been laid off of work as a Superintendent in commercial const.the 2nd is due the 28th and we will not be paying that either.Since I dont have a job yet and don't see geting one in the immediate future I dont see any reason to contact Wells Fargo yet untill we are 60 or 90 days late.At this point I don't want to be current any more because of how upside down we are whats the point let them have it. Any suggestions would be appreciated. Thank You

[brunok]

Why are people signing these notes to pay BofA %10 of the difference over 30 years? Even if it is only $10,000 is that still worth the difference between a short sale and foreclosure?

[faith]

Originally Posted by brunok

Why are people signing these notes to pay BofA %10 of the difference over 30 years? Even if it is only $10,000 is that still worth the difference between a short sale and foreclosure?

Brunok,
Hello and welcome to this forum,
For homeowners who are trying to do a Short Sale with 1st and 2nd mortgage, the lender's PMI company's will require a promissory note to pay them the balance owed on the 2nd mortgage. If a homeonwer has a purchase money mortgage and never refinanced, then CA Section 580b protects him or her for any deficiency judgment.

Due to the current market crises, PMI companies lost a lot of money and wants to get some moey back from the borrower who was not able to fulfill their obligations. They make the lives of everyone who requests for a Short Sale difficult and will not approve a Short Sale unless that homeowner sign the promissory note. They ask 30% maybe more to pay back the balance owed. When you settle a debt to a creditor you settle by offering to pay it back at your affordable payment. You can make a counter offer starting from the lowest percentage say 10%, payable in 30 years and no interest, with a letter stating they will not pursue any deficiency judgment against you and that they will report it to the credit bureaus as paid as agreed, settled in less than full balance.

Playinthegame,
I am sorry for what you're going through right now. Maybe you should contact NACA and ask them what to do. You can also call Wellsfargo to see if they can put you under forbearance plan if you want to keep the house or ask for a Short Sale but you need to have it listed with a Real Estate Agent for at least 60-90 days before they approve it. Or you can ask a Deed in Lieu of Foreclosure if you don't want to keep the house. I did not pay Countrywide for 10 months, I lost my job too due to car accident caused by uninsured driver. The house was sold on the 10th month I've missed payments.You can also write a financial hardship letter to WF explaining your situations.

Here's the link for success stories
http://www.loansafe.org/forum/succes...ught-back-won/


Here's the example for financial hardship letter:
Examples of a Hardship Letter

Good luck for both of you and God bless you.

[brunok]

Faith, so if you are in California with a non-recourse loan, the PMI company wants a note asking for 10,20,30% of the difference on the balance owed, the only reason to sign it is if you think that is worth the credit reporting difference between a short sale and a foreclosure - correct?

I'm not at this point yet, I'm assuming I will be soon because we are trying to do a short sale on our place now. If they approve it, the difference is about $125k, %30 is around 40k. I would much rather not sign the note, keep the 40k and take the foreclosure hit which adds a few years onto when I can buy a house again (because everyone is in a hurry to do this...)

That explains my question a little better - I didn't understand why people would sign that note to those terms when it appears doing so only saves them a few years of credit history.

[faith]

Originally Posted by brunok

Faith, so if you are in California with a non-recourse loan, the PMI company wants a note asking for 10,20,30% of the difference on the balance owed, the only reason to sign it is if you think that is worth the credit reporting difference between a short sale and a foreclosure - correct?

Originally Posted by brunok

I'm not at this point yet, I'm assuming I will be soon because we are trying to do a short sale on our place now. If they approve it, the difference is about $125k, %30 is around 40k. I would much rather not sign the note, keep the 40k and take the foreclosure hit which adds a few years onto when I can buy a house again (because everyone is in a hurry to do this...)

That explains my question a little better - I didn't understand why people would sign that note to those terms when it appears doing so only saves them a few years of credit history.

Bruno,
What I was talking about is about Short Sale. If you have two mortgages with the same or different lenders the investor and the PMI company will not approve the Short Sale unless the seller will sign the promissory note to pay the balance owed. This is the time you negotiate from 10 to 30% of the balance owed so that the Short Sale is approved.

However, in my case, I have a purchase money mortgage and I have never refinanced, so I told my negotiator that I will not sign the promissory note and I’ve told him that let it foreclosed, I will file for bankruptcy and I told him they can not pursue me for any deficiency judgment because I am protected by CA Section 580b. They have approved the Short Sale and I did not sign the promissory note and the balance owed was forgiven, they have reported it to the credit bureaus as paid settled in less than full balance.

California has two primary laws that deal with foreclosures, short sale and ensuing potential deficiencies. These two laws are 580b and 580d, and are found in the California Code of Civil Procedure. CCP 580b: This is the purchase money rule. Under this rule, a lender can not pursue a debtor after foreclosure for any deficiency balance as long as the qualifications under 580b are met. That means that if there was a judicial or non-judicial sale, and the lender did not receive their full loan balance from the sale and money is still owed, they can not enforce payment on the difference.

This is what is says:

No deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the purchaser to complete his or her contract of sale, or under a deed of trust or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property or estate for years therein, or under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser.

You must have a purchase money and never refinance, primary residence for at least two years, investment property where the purchaser never occupied the property at least in part, will not work; under 4 Dwelling: property must be residential property with 4 or less families.

There are two exceptions: Fraud and Waste If the loan was fraudulently induced (the application contained purposeful misrepresentations of assets, income, etc) or waste was committed on the property (the homeowner in anger over foreclosure proceedings damaged the property, removed out plumbing, appliances, lighting, granite, flooring, etc) then the Lender can still sue the homeowner in Court for damages, even after a non-judicial or judicial sale on a purchase money loan. See cases (Evans v. California Trailer Court, Inc. (1994) 28 Cal. App. 4th 540).
>>

For example, if you purchased a home for $300,000 with a $200,000 first deed of trust and $100,000 second deed of trust, which was never refinanced,where there was no fraud or waste, and which you occupied, if the first forecloses and receives $150,000, then the first and second can not pursue you for any deficiency. So even though the first and second are still owed total of $150,000, they are prohibited to pursue the deficiency by law.

[brunok]

Originally Posted by faith

However, in my case, I have a purchase money mortgage and I have never refinanced, so I told my negotiator that I will not sign the promissory note and I’ve told him that let it foreclosed, I will file for bankruptcy and I told him they can not pursue me for any deficiency judgment because I am protected by CA Section 580b. They have approved the Short Sale and I did not sign the promissory note and the balance owed was forgiven, they have reported it to the credit bureaus as paid settled in less than full balance.

Wow good for you! I will keep that in mind if they come to me with a note.

Is bankruptcy filing necessary though if you are protected by 580b?

Thanks for all the information.

[faith]

Originally Posted by brunok

Wow good for you! I will keep that in mind if they come to me with a note.

Is bankruptcy filing necessary though if you are protected by 580b?

Thanks for all the information.

Bruno,
When I told my negotiator that I would rather file for bankruptcy and let the house foreclosed was to intimidate him and to scare him. When they approved the Short Sale, I told him that I need something in writing that they will not pursue any deficiency judgment against us even though I know that I am protected by CA Section 580b since I have purchase money mortgage and never refinanced.

He sent me a letter and all the instructions about escrow and statement that they will not pursue any deficiency judgment against me. I sent an email to make sure that there's no trick about this letter, he confirmed it via email repeating they will not pursue any deficiency judgment against us. I just want to make sure how much the balance was forgiven, so I sent an email and ask about the 1099C and how much the balance forgiven. He responded that the investor will sent the 1099C and told me how much the total amount owed that was forgiven.

Thank God I asked for the letter and emailed him, they did not send me the 1099C inspite of repeated phone calls and requests. I used my Turbo Tax software and completed the form 982 and put the amount that was forgiven stated in that email. I sent also copies of Full Reconveyane letter that I received from the County Recorder and attached it to my Income tax and form 982 and a letter explaning to the IRS & State tax about my situation. They have accepted it and refunded me $90. I paid IRS $27.

When I checked my credit report, they have reported that I still owe the 2nd mortgage. So I disputed it with the credit bureaus and sent letter to the lender which is now B of A attaching all the copies of emal and letter they sent me. They changed the balance to zero and paid as settled less than full balance.So I did'nt have to file for bankruptcy.

Short Sale affected my credit score but not as much, my credit score used to be 750 now after Short Sale is down to 677. I have put a Fraud identity on my credit because CW sent me a letter stating that few of their employees stole customers confidential informations like ssn, names, etc and sold it for money, the customer's that was affected was about 1 million. The employees that did it is now in jail.

Learning how to deal with your lender is the key how to negotiate with them. Arm yourself with information and knowledge and say a Silent Prayer, asking God for favor daily is the key to successful negotiations.
I really thank God for Moe and this forum, this is one of the places where I found informations free of charge. God bless him always.

As far as bankruptcy, if you decide to do that, have a free consultation with a Real Estate Lawyer with expertise in Bankruptcy and Loan Modifications. Be sure you check the attorney you want to hire online to see if he is license to practice law and how long he has been practicing law. Check also the Better Business Bureau to see if they have complaint against him.

Here's the link for attorney search, jsut in case you need it:
Attorney / Member Search

Prepare your heart because any negotiations with creditors and lenders is a very long, tough, frustrating, draining and emotional process. A lot of sleepless nights and asking people to pray for us. Please be patient, but be bold and persistent at the same time.

God bless you and take care.