Do we still have time for a short sale?

[Lori56]

Another CCC resident here, but in Concord(CA). Our trustee sale is Jan 1, next month. So far we have had 6 offers for our short sale since March, but potential buyers went away as the banks took too long to respond. We have a first (refi) with Wells Fargo, $480,000, which is an ARM. Second mortgage is $49,000 with Citimortgage and is fixed, loan was taken out beginning of last year. Of course, property value has dipped at least $200,000 since it was appraised at $565,000 in 2005, probably worth about $325,000 now. We have owned it since 2004. Now Citimortgage is making our lives really, really miserable by threatening to take all our savings in the short sale if we find a buyer in time. Right now I am the only one working, my husband is unable to find employment and we have credit card debt. We were pretty current on our bills too, but now in survival mode and have to pay what we can on them to preserve our savings until my husband can find employment. Thank God we found a place to rent. To make things more stressful, my husband's mother lives with us and she has dementia, and he is pretty stressed every day dealing with that too as he is a caregiver for her.
Just wondering if we can still DIL, as we have no buyers. Looks like there's no way to salvage our credit at this point, as we would like to buy in 2-3 yrs again. I tried to look for a similar story before posting; some of the legal stuff just baffles me. Just hope to not have a heart condition before all this is over with. So really DIL is really like foreclosure I guess? I guess I need to stop worrying about our credit, as there's nothing we can do about our situation. Should we seek legal counsel? Our realtor has not really pushed it. Is there something we can do?

[The Professor]

The practicalities of a short sale are doubtful given the facts as presented. The answer would be the same for a deed-in-lieu. But rather than make those blanket statements, let me explain my rationale in arriving at that conclusion. The rationale is based upon three specific facts.

1. Your current estimate of the property value is $325K.
2. The balance on the first loan is $480K.
3. The balance on the second loan is $49K.

As to a short sale, the first lender (WFB) is going to insist on receiving all to the sales proceeds with the exception of a nominal amount going to the second lender (Citimortgage). Finding a buyer and getting all your ducks lined up, including the agreement of both WFB and Citimortgage to go along with the sale, given the limited time, is next to impossible. Even with all the time in the world, with two lenders and no equity available to the second lender, chances of a successful conclusion are doubtful at best.

As to a deed-in-lieu, I guess my question is who would you deed it to? If you said WFB, then my question is why would they be insane enough to take ownership to the property subject to the Citimortgage loan? Wouldn't it make sense to simply foreclose and own it free and clear? On the other hand why would Citimortgage accept a deed-in-lieu when what they would get is a property that is underwater by $155K?

I wish I had a less realistic assessment that provided more alternatives. My sense is you will lose the home to foreclosure and still owe Citimortgage (because of the recourse nature of its debt). I do think that you should make an appointment to see a bankruptcy attorney and see if either a straight bankruptcy (Chapter 7) or a wage earner plan (Chapter 13) makes sense.

Take care,

Daniel

[Lori56]

Thanks for the response, Daniel. Actually the trustee sale is Jan 15, not Jan 1st. Probably doesn't make much of difference though since we're out of time. Will read up on Chapt 7 and 13 and consult a bankruptcy lawyer from there. And so Citimortgage can go after us regardless of Chapt 7 or 13? So realistically we can't buy for at least three years, oh well. What a sad situation.....