Left the property, short sale rejected, called youwalkaway.com

[evmc68]

Looking for thoughts on what I heard from youwalkaway.com [YWA, my abbreviation].

Looking to unload our SoCal home that lost 40+% value in 3 years.
Tried to short sale, rejected because we are still current on payments.
Called YWA today to check those options.
We are a one mortgage holder with no financial hardship. We have already left the property and are committed to unloading it. We hoped to do so without going the foreclosure route.
YWA told me that short sale could be potentially worse than DIL foreclosure since they could build recourse into the short sale agreement.
Is this true?

Everything I've learned about short sale vs. foreclosure process in the last few days is illogical and has my head spinning for some reasonable linear thinking.

As always, thought, comments and advice are appreciated in advance.
Thanks.

[seashells48]

Yes - the banks can seek recourse in a short sale. I don't know about California laws, but in in Illinois if the bank accepts a Deed in Lieu, that's all they get. They can't come after you.

[spiker54]

Well....when I talked to BofA about a DIL (I'm in CA) they said they would expect a deficiency judgment (I've got a Freddie Mac loan which does not fall under the HAFA program)

[SciGuy]

What YWA told you is indeed true. If you do go the short sale route, make 100% sure that you have a lawyer look over your documentation so you make sure that the bank doesn't turn something that was non-recourse into recourse, because you can bet they'll try given half a chance.

The short sale process makes no sense, really, so don't feel bad about your confusion. Doing a short sale benefits the banks FAR more than the homeowner, but the banks don't want to approve them if you are current on payments because their assumption is that you feel morally obliged to keep paying and/or don't want to take a credit hit. The problem is, you have to take a pretty hefty credit hit for them to even consider a short sale, which removes a lot of your incentive to do it.

The only advantage I can see to a short sale is that from what I understand, it looks slightly less bad than a foreclosure when it comes time for you to take out another home loan. However, be aware the banks will make it as difficult as possible for you, often for reasons that seem completely contradictory to their own best interests.

[Angels]

I read that Freddie and Fannie have been reporting short sales and DIL's as the same as foreclosures. Like what has been mentioned above, if your loan is non-recourse you are taking a risk at helping the bank by signing for a short sale or DIL. Just be very careful, banks never do anything unless it is in their best interest and are not always up front about their intentions.

[StrategicDefault2010]

Everything SciGuy said absolutely correct... especially in a non-recourse state such as California you're opening yourself up for much more liability by signing off on a short sale or DIL in most cases than you would be if you simply stopped making payments & let them foreclose... not to mention the fact that if you go that route, you will be able to maximize the time you live for free in the home and offset the credit damage with a nice chunk of change saved by living free for what's been a year in most cases in CA.

I wrote a blog post on this exact subject about 2 months ago, it offers some more detailed explanations of the short sale process and potential ramifications vs. just defaulting. Hope you find it insightful...

Why On Earth Would I Attempt A Short Sale? | You Walk Away Blog

[evmc68]

Amazing insight. Thanks so much for those that have replied so far.

[5284CA]

I echo all that has been posted here...it just does not have many (if any) benefits at all to sell short as opposed to foreclosing

[CantPayWontPay]

Yes - but in in Illinois if the bank accepts a Deed in Lieu, that's all they get. They can't come after you.

Is this really true?

[seashells48]

Yes. Although why Illinois thinks a DIL should keep the bank from coming after you and a short sale won't - I don't know. I wish the state would revise that part of the statute. If you follow the link above (somewhere), it will take you to a site that has foreclosure info for all states. And if you follow a link on that website to the Illinois site and search "foreclosure", you'll get the latest bills they've passed.

[seashells48]

Here's the website:

Illinois Foreclosure Law

[CantPayWontPay]

Thanks for the info!

[Buckus]

I talked to my bank about a short sale. They said they generally try to attach a promissary note for the amount of the deficiency. This is in Arizona. So in Arizona, a short-sale opens you up to a potential deficiency debt even though the state is non-recourse. So I would say if you do a short-sale, make sure you have a lawyer vet the contract and make sure there is no deficiency attached and that the bank considers the short-sale to satisfy the mortgage. Credit-wise, you're not doing yourself any favors with a short-sale over a foreclosure or DIL. If the bank even hints they are going to attach a deficiency to the short-sale, I'd tell them thanks but no thanks, you can have the house at the trustee's sale.