Okay...we decided last night to take the plunge....walk away or short sale?

[luckythirteen]

Hello,

Here are the particulars right off the bat so you know what is out there for us.

• State of WA
• Purchase price of $445,000
• Current value of property is $360,000
• 1st of $359.960 interest only at 6.525% (adjusts 8/09)
• 2nd of $87,700 ......30 due in 15 at 10.25%
• payments total $2,792 a month

Both of these loans were purchase money back in August of 2006 and I have never refinanced.

My lender is Saxon Mortgage on both loans and I filled out their loan worksheet and sent in all paperwork that was requested for a loan modification and it was denied on both due to too much debt to income.

I pay my taxes and insurance on my own and neither is overdue, although the first half of the taxes are due in about a month or so.

I have never been late on either of these two loans and am making the decision to not make my April payment at this time.

I am married, but the house is not in my wife's name, and I bought it before we got married.

Together we have over $70,000 in unsecured credit card debt which we have never been late on either with payments totalling $1650 a month.

In addition we have two car payments totalling $850 a month and student loan payments at $382 a month which are currently in an unemployment deferrment.

My income in 2002-2007 was over $150k a year, and the company I worked for went belly up. It took 4 months to find a new job at a much lower wage, but we used savings to cover the difference. I hated that job and quit after 8 months and found a new job I absolutely loved after 2 months with an income of about $125k a year. Our savings got depleted and we used credit cards to cover differences in things and we probably did not adjust our lifestyle downward since we are now knee deep in CC debt.

That great job I got in 3/08 is now gone as it was a startup company and they cut 80% of the employees. I am now unemployed and getting $2160 a month in unemployment, while my wife's take home is about $2,300 a month.

If we are willing to take this all the way to foreclosure, but stand to gain a lesser hit to our credit reports by short selling through an experienced agent in short sales, doesn't this seem the best route to take? I will not be able to live in the house rent free for as long, but the longer return on this decision will most likely mean I can purchase a new home sooner. Is this correct?

I want to maximize my ability to live here a long time and save money, because I do not know how long it might be before I find a great job again, but also do not want to jeapordize our future at the same time and the ability to find a good rental. (although my wife's name is not on the mortgage)

Our plan was to get it modified, find a renter, then go into a debt management plan for the CC stuff, but that is on hold I think because we don't want to trash the credit if we need to find a good place to rent.

thanks in advance for your thoughts and responses!!

[luckythirteen]

I also should disclose that I had a Chapter 7 bankruptcy in 10/2003 and my wife has never had a bankruptcy ever.

[luckythirteen]

and yes, this has been our primary residence the whole time

[luckythirteen]

there also seems to be a healthy dose of real estate agents in the seattle market that want to do short sales and many seem to have alot of experience with this......one in particular I spoke to today said that he partners with a different real estate office and they actually get short sale approval from the lender before they list it on the MLS and the way they get approval is that he is a cash buyer, then when they put it on the MLS, they find another buyer for higher and then he flips it right at the closing table and gets the difference......

if that is the case with these realtors, then can I request a portion of the proceeds? say $5k to list with them and not someone else?

If i am going to go short sale and forego living in my house for free for an additional 3-5 months, then that is worth something isn't it?

[The Professor]

A key factor in your decision making process relates to the application of Washington State law as it relates to the facts of your situation. This site has an area that summarizes the applicable laws. You can find it by clicking on the following link:
Washington Foreclosure Law

You will note that it contains the following:

If the non-judicial foreclosure process is used by the lender, then it cannot sue for a deficiency judgment. On judicial foreclosure sales, the borrower can be sued for a deficiency, unless the property is found to be abandoned for six (6) months before the decree of foreclosure.

What this suggests is if you stop making payments the first lender can be expected to follow the non-judicial foreclosure process, eventually eliminating your ownership interest and the second lender's security interest in the home. At that point the second lender will likely sue you (if you are not making payments) and seek through judicial process to collect what they are owed.

Since the second lender would be a participant in any short sale (their permission is needed) perhaps going that route will give you an opportunity to settle up with the second lender for something less than the full amount owed.

Daniel

[luckythirteen]

thanks for your thoughts and comments Professor........my understanding is that since my 2nd was purchase money and I am basically "insolvent" and do not have the ability to repay with the load of debt and lack of income, that most of the time the 2nd lienholder will not pursue a judicial route but rather a non judicial route.......although I have filed chapter 7 bankruptcy in the past, i do still have the chapter 13 card available to me i believe and if so, believe it may be an option due to the large debt load i currently have......

[The Professor]

Given the lack of equity beyond that owed the first lender, there is simply no practical way the second lender will follow a non-judicial rule. They will simply wait until they lose their security interest in your home as the result of the foreclosure of the first loan, and either sue quickly or wait around for as long as they can (until the statute of limitations gets close to running), evaluate your financial situation, and make a decision as to whether or not to initiate a lawsuit.

This my friend isn't something that will simply go away. You need to deal with it so you can get on with the remainder of your life.

Daniel

[luckythirteen]

okay.....so if a short sale does not happen, then what would you propose to "deal" with it?

[luckythirteen]

professor, your comments seem to be contradictory to other posts I have seen from you stating to just "ride it out" and "live rent free for as long as possible".....wait for "cash for keys"........

but in my case, you seem to be less optimistic........why so?

[The Professor]

Because you live in Washington and its state laws are different than places like California and Arizona where there is "non-recourse" protection for homeowners who obtain secured loans to buy there homes. California and Arizona are among a handful of states where their legislature has put into place these anti-deficiency statutes. Unfortunately for you and a great number of forum participants who do not live in these states, the only choice is to be "less optimistic."

Daniel

[luckythirteen]

The credit ramifications are far less on a short sale than a died in lieu or a foreclosure. I understand if you cannot negotiate that short sale with the lender, then the next option would be to let it go, but why on earth wouldn't you at least make an attempt to short sale first?

Is it laziness? I dont people to say it is too much work, because that is not a good excuse.

Please enlighten me?

There are many real estate agents out there who do not know what they are doing with short sales, but if you do just a little bit of internet research you should be able to find some short sale specialists/investors in your area.

[sharona]

luckythirteen- From what I undrstand there really isn't a difference in fico score ramifications. The only difference is on a short sale you can buy a home again after two years versus five with a forclosure. Also, a foreclosure is easier for the borrower, short sales only benefit the lender and realtor.

At least that is my understanding from everything I have read on this website and others. I live in California though, it may be different in Washington as far as defiency judgements and short sales.

[luckythirteen]

but being able to buy a house in 2 years versus 5 years IS a benefit to the seller..........this is THE single most important reason you would want to do a short sale.....

why not put a little effort into making your ability to buy a house sooner than later?

lot of irresponsible people on this site if they are not willing to at least LOOK at this as a possibility

[AZChick]

The problem isn't buying another house, but making sure you have a job to pay the mortgage. I don't see the job market firming up anytime soon. I'm sorry but I'm not going to give a realtor commisson from my short sale. I'm tired of people making money at my expense, a realtor already recieved commisson when I bought the home, the bank already got my deposit and "monthly" rent payment, now I'm supposed to consider a short sale to give another realtor a tidy profit? I'm only speaking for me, but I don't think so. Personally in 5 years I could save enough to put down a large sum on a new property IF I so choose to do so.......if I've learned anything, home ownership should not be taken lightly, the minute you lose your job or the economy sours you are in trouble.....my 2 cents.

[AZChick]

I should add, I am in AZ so I have the advantage here, if I was in another state this could be totally different.....I have heard that short sales hit your credit just as bad as foreclosures though....

[sharona]

I have to agree with azchick. The banks and realtors certainly don't care about us. All they want is their money. I don't feel compelled to do what is easier for them. Also, I wouldn't want to buy for at least 5 years after going through all this.

[AZ Meltdown]

My 2 cents.

I don't have a lot of faith that the housing market and economy will have recovered and stabilized even in 5 years to buy.

Also, I believe that after this crisis is over there will be plenty of lenders that will still lend to those that were foreclosed upon. However the rate will be higher and THIS time they will not be lending to 95-105% of the value of the home.

[AZChick]

Very true, this economy is based upon people borrowing, the lenders will find a way to make money off of us again, they will start a "new program" to help those of us with damaged credit borrow up to our eye balls again at a higher interest rate. I have vowed never to be taken again by this bs.