Thinking about a short sale on "investment property" with Aurora and E-trade bank

[andrewm]

Hi,
I guess I'm just looking to get some thoughts on our situation as I am incredibly nervous about the whole process.

We have a condo that we bought (in Connecticut) in 2005. Obviously, its worth far less that we owe.

We moved and have been renting it out (losing at least $400 every month). We grew out of it, it was a tiny 2 bedroom. We tried selling, but couldn't get an offer anywhere near our asking price.

We now have a mortgage on a primary residence. The primary residence does have some equity (20% down). We've found that with gas prices rising, etc. (I commute to work) that we cannot afford that outlay any longer.

I am considering attempting a short sale on the condo, but I Vdo not want to put myself at risk for having to sell the primary residence. I have my in-laws living with us, and we cannot afford to have to move and lose this house.

Here is the summary:

Primary mortgage: Aurora Loan Servicing $151,000
2nd Mortgage: E-trade bank approx. $30K

Fair market value would be around $150K for the condo.

This was our primary residence for 5 out of the last 6 years.

We've got 20% equity in the new house (as the in-laws gifted us 20% down because they were moving in).

This is all in Connecticut.

My chief concerns are that we are not forced to sell our primary residence. I would stop making payments in February (when the current tenant leaves). I am planning on contacting a local lawyer and short sale expert agent to assist me in the process. I'd even be willing to kick in some money if needed. I guess I'm posting here because I'm nervous about just how wrong this process can go!

At the same time, I'm putting no money towards retirement right now, we are on a strict budget, and everything just keeps getting more expensive! It's too much hanging over our heads.

Any advice / help / thoughts would be awesome!

[andrewm]

I'm reading other threads and they are very helpful too... But it was therapeutic just to put those thoughts into words!

[Cat Damiano]

Hi andrewm,

Welcome to the forum and thank you for joining...............

It is a tough decision to make and one that you will find many members here on the forum contemplating.

Connecticut does have deficiency allowance, but if you are going the short sale route, this is something that the attorney or real estate agent would be able to mitigate for you:

http://www.jud.ct.gov/lawlib/Noteboo...oreclosure.PDF


Good Luck! Please keep us posted on your progress.

[andrewm]

Thank you - I will post progress. I am not planning on missing payment till my current tenant leaves.

I plan on talking to a lawyer in the November timeframe. I will post what I find out!!

[Colorad]

Andrew M, Any updates to your story? I am in the same situation. Let me know what you have learned if you have moved forward with a short sale, etc. Deficiency judgements are in CO as well, and we were refused a loan mod or any help from any program due to the fact it's a rental. I just listed mine (with tenant) and apparently might have an offer, but I wonder what will happen to the deficiency & if it can be negotiated! Thanks

[andrewm]

Funny that this reminder comes along now...

I am going to see a attorney tomorrow to discuss my options and the ramifications against my primary residence.

I will try to get back in here tomorrow night after the meeting. If I don't, please feel free to post a reminder.

[andrewm]

Ok, here's the deal thus far.

Problem with the short sale (if allowed) would be the tax hit since it is not my primary residence. I'm not sure if I would be considered insolvent as I have savings/some equity in primary residence.

I am attempting to determine this, and also looking at what might happen if I simply default. The attorney I spoke to said that if they seek a deficiency judgement, they could put a lien against my primary residence.

Does anyone know if they could force you to sell in CT? I believe the answer is no, but will need to follow up on that question.

In any case, my tenant is moving out, and starting March 1 I will stop making payments. I am going to call both lien holders in 1 week (I am having the condo assessed on Tuesday) and will explain the situation to them and ask what my options are.
My attorney suggested I do this and document the actions I have taken.

So, anyone familiar with defiency judgements in CT?

[Cat Damiano]

If you are asking if anyone has been hit with a deficiency judgement in CT, I would suggest either asking your attorney, or googling it to see if there may be any.

[andrewm]

Well, I thought I'd keep this going a bit longer as I go through the process.

Here is where things are now:

1/23/2012

No payments missed yet.

Attorney recommended I get an appraisal - she said it would help going forward before I contact the mortgage holders.
This is taking place tomorrow (should have results in 3-5 business days.

I am going to talk to a CPA (this week) hopefully about the tax consequences. Since this was our primary residence and we only rented it out to "try to do the right thing" (tm), I'm hoping we'll be ok from a tax perspective. Obviously, if I could afford a massive tax bill I'd just sell the condo for a loss.

I'll post the results here.

I'm trying to decide whether I'll pay the Feb mortgages or not. The main consideration is if I can get everything taken care of in time....

Side note - I will then likely go buy 2 cars:
- Wife's lease is up in August, when our credit will be crap. Will buy leased car out as it's a good deal based on other factors.
- I commute to work - 35k miles / year roughly. Current car is @ 100K miles, but paid off. I'm worried it will die before I can get a car loan, so will likely get a commuter car.

A personal note - I don't really feel bad about doing this - the banks do this sort of crap all the time, and it's the right move for my family since I really can't afford to pay this without a renter (even tough with one). I'm incredibly stressed out worrying about all the different scenarios here, especially the tax consequences. I wish I had never bought this condo - but I also wish I had just gotten the short sale over with while living there, instead of "trying to do the right thing" and renting it out so I could keep making payments.

Funny, all this BS about it being a good market for landlords, but I lost my renter and the amount I can get for rent has dropped by $200 a month (which I can't afford to match).

[andrewm]

Quick update:

Spoke to my CPA about tax issues.

Long story short, he said there was no short answer.... He said he thought I could get out of having to pay any taxes:

He suggested that when I get 1099-c'd, I claim it as a primary residence, since I have a legitimate argument: it was my primary residence through 2010, and only a short term rental. He said at the very least this would buy me a couple of years.

The alternative would be to claim the investment property loss and he thought this could be done in such a manner that the 1099c gain would essentially be wash.

In any case, I feel a bit better about the tax issue.

On to other stuff:
I went to the unit with the appraiser. The tenant did some damage moving out, and it would not show well for a renter right now - this was the nail in the coffin for me. I called my real estate agent and let her know that I'll be pursuing a short sale (which she'll handle).
Basically, she thought the SS would be difficult because of the multiple lenders, but she thought that given the steps I've taken and that I legitimately cannot afford to carry the 2nd home, that the lenders would be "more understanding" and less likely to pursue a deficiency judgement if a SS does go through, or if they foreclose.

I don't know if that is true or not, but at this point I am fairly confident that:

- My primary residence is safe (a lien could be put on it, but I cannot be forced to sell if I keep making payments on it as the condo was not secured by it).
- I can likely get the tax situation to be a wash.

Just a few more things I'm looking at:
1) I will keep paying the electric bill and homeowners on the rental property.
2) I will not make any more condo fee payments after the February bill.
3) Should I have the unit cleaned for short sale showings? I'm guessing I should, so I will call in someone.
4) Should I send cease and desist type documents (FDCPA) to the mortgage companies? What do you think? My concern would be that it would hurt my case.
5) Should I preemptively call the mortgage companies and ask what my options are before missing a payment? It's been suggested to me (by my lawyer) that I should. However, I've read a lot of the prior posts here, and I've seen the opposite suggested.

I'll post later this week.

[Cat Damiano]

Hi andrewm,


Thanks for the update. Getting information about the tax liability upfront is a good thing. Although, you may want to continue paying the HOA dues as they can and often will come after you personally.

[andrewm]

Thanks Cat - I hadn't really considered that, but with that in mind I'll most likely keep paying the HOA fees.

[andrewm]

As I do more research and prepare for my next discussion with my lawyer, here are the questions that bug me the most:

1) Defiency judgement enforcement (if there is a judgement): in Connecticut, what can they do? I can't ever seem to get a firm enough answer to this. I've mentioned the answers I've gotten in prior posts. This still makes me nervous though when I sit down to really think about it.

2) Any other impact to my new home (which I intend to keep paying) that I am not thinking about? (i.e. aside from a credit hit, etc.)

I'm going to make this the focus of the conversation and press for at least an reasonable explanation.

If anyone here has any thoughts on this please let me know. In any case, I'll also post those answers.

[andrewm]

1/25/2012

Just received the appraisal. Cost approximately $350.

The guy appears to have done a great job as expected. The sales of comparable units were all very low.

So, here are the results:

I owe $182 roughly total : $151,900 + $31,000 (total purchase price was $189,900).

Current appraised value based on comparables is $80,000

[andrewm]

Frankly, I've got no clue.

I haven't worried about that too much yet, but I'll at least ask my attorney. Everyone I've spoken to thinks the chances of being pursued for a deficiency are near zero. I guess I'm assuming that I'll eventually be able to reach some sort of agreement with the lenders to get them to drop the matter.

My goal is (if I am able to do a SS):

1st mortgage - contribute as little as possible. I'd be willing to bring some cash to closing but need to keep it minimal.
2nd mortgage - my top end would be 10% (~$3,000) via a payment plan.


Side note:
Just got off the phone with my lawyer - they confirmed for me that I cannot be forced to sell my primary residence. My pay can be garnished, lien on the primary property ,etc. in a worst case scenario.

[andrewm]

Ok, now I am at a bit of a minor fork in the road:

The lawyer I've been talking to sent me their short sale packet, which requires a $450 non-refundable deposit. The letter also says fees will likely be between $1000-$3000 total, which the lender "may" pay at closing.

I'm thinking about whether I actually want to retain a lawyer at this point.... I have a Realtor, and I do have a friend who is a lawyer in CT who has been giving me legal advice (this friend handles realty law on the other side of the state. The friend actually suggested that I not get a lawyer now, saying they'd advise me. Plus, I always know I can run things by everyone here (thanks!).
(I am supposing that if things get really hairy, I can always hire this attorney later on).

I need to spend some time thinking about this - anyone have any thoughts?

[Cat Damiano]

andrew,


You pretty much just answered your own question here. If your friend practices Real Estate Law and you have a real estate agent, I would think it would be pretty redundant to then hire an attorney that would be doing exactly what the real estate agent can do for you, no more, no less.

[andrewm]

Yeah, guess so. I'm going to hold off for now.

Car situation is taken care of, so I think I've prepared enough to minimize the impact of the credit hit.

Will update again once I take to the lenders on Friday. Next mortgage payment is due 2/1, I will not be making it.

[andrewm]

Mortgage payment due today - obviously neither are in the mail.

Paid HOA and transferred electric to my name.

On other fronts, I'm still really nervous about this whole thing since CT is not a non-recourse state. I am talking with the attorney again tomorrow.
Basically, my Realtor has been adding some confusion for me (no time to get into that now) - she has been a bit inconsistent with some of the info she has given lately.

In any case, here is what I am again going to try to find out:
- short sale, what is the impact aside from credit, what happens if there is a deficiency judgement.
- if the bank ends up just foreclosing, should I go chapter 13? I do not have unmanageable debt aside from this condo. Hell, I've never even been late on a bill before in my life. I just want to protect my primary residence and my family's future, and I simply cannot carry this condo, no matter how the math is done.



Any advice? I've been trying not to panic the last few days but I have to admit the possible consequences (aside from credit hit) are taking a toll. If anyone reading this has gone through this in Connecticut, man would I appreciate hearing your story.

In any case, after I have this conversation with my attorney, I'll post what I learn. I really hope it helps someone!

[andrewm]

Ok....

Well, here are the answers.

First, I was told "I wouldn't worry about your primary residence being affected".

Two options:

First, he told me to reconnect with the CPA and get a firm answer on tax consequences.

Then, we decide on the two options:

- short sale: the lawyer has a negotiator who will work to ensure deficiency gets waved.
He told me this is a difficult SS, but in these cases the 1st typically waives deficiency, but I should expect the 2nd to want cash at closing. He said a typical occurrence is that the primary will contribute $3000 to 2nd lien holder, and I should expect to have to bring about $3000 more given the balance on the second loan ($30k roughly).


2nd option is foreclosure + bankruptcy. This is the path we'd pursue if either I was to take a tax hit or the short sale path didn't work (couldn't get deficiency waiver, couldn't get the bank to agree, etc.)

Either path, I avoid a lien on my primary residence. Credit will be gone... But, I'm out from under this gigantic stone that is on top of me.

So - next steps:

1) Talk to my realtor. If she insists on getting short sale approval first (lawyer thinks this is a waste of time and will be a lot of extra work for me), or is unwilling to work with my lawyer and his negotiator, I am going to change realtors.

2) Talk to CPA tomorrow. If I can't make the tax situation a wash, probably don't need to worry about option 1.

3) Now I'm firm in not paying February mortgage.


Feeling a whole lot better. The lawyer does not take a retainer - he said that they get paid by the buyer in a short sale. He also said that the negotiator is someone they use who does only negotiations, and will get paid a flat rate by the realtor as a "selling expense" (he said this would be similar to how a professional stager might get paid).

(I was also warned that in CT these "short sale" realtor certifications just means that they sat through a 4 hour class).

In any case, getting help from someone who knows the law and handles these cases frequently was a huge benefit to me. I've got a bit more piece of mind, and I feel like I understand the potential outcomes. While it will not be easy, and the impact will be huge to my credit, my family will get through this and come out on the other end.

I'll post as I have more info. We are not paying the mortgage any longer, so I'm interested to see when the phone calls begin (mid to late february?).

[andrewm]

Things are on-going... No big updates.

Quick hitter updates:

CPA says counting the SS as a business loss (since it was a rental) will offset most of the income on 1099-c.

The calls have started from the mortgage company.

Realtor is putting it on the market this week.

Getting good advice makes all the difference in the world. I know that things will either go one way or the other, and I'm at peace with both paths.

If anyone has any questions, ask away. I'll update once things really pick up

[NoCal]

Thank you for posting your story and each step of your thought process. I'm in a similar situation in California, but instead of a SS I am just walking away. We purchased a new home and rented out our townhouse/condo. We do have renters but we lose over $850/mo and just couldn't do it anymore. I wonder if I could claim a business loss on FC...? We paid January, but not February- Our last payment was due 2/1, grace period ended 2/16. Haven't received a single phone call. Strange, but a relief. I thought I'd start getting hounded right away. I have a 1st and 2nd, both with Chase. We'll see how it goes..

[andrewm]

Thanks NoCal,

Since you replied, figured I'd post an update...

Condo is listed, and we're still waiting for an offer (hasn't been listed long).

We get about 1 phone call from each lender every one to two weeks. They have been pleasant calls - I say that with a perfectly straight face. Here is generally what I am hearing after I tell them what is going on, and that I will not be paying: "We understand the situation. Is the house secure? Do you have any questions for us? ".
I am then usually reminded that I do not have to provide any info till I have a buyer, and that they will check back in with me periodically.

So far, so good. I am now past the 30 day mark by about 1 week.

[DistressedInSTL]

Andrewm - I would love to hear an update! I'm in a similar situation.

[andrewm]

Andrewm - I would love to hear an update! I'm in a similar situation.

Hi,

Well, not too much has changed (yet).

We haven't paid since February (either mortgage). We do have an offer in to Aurora and E-trade. The BPO has been completed, but they are not sharing it with us yet. We've been told to expect a decision late June.

I am dealing with a rather pleasant single point of contact @ Aurora. Still, they are slow.

The offer is quite low, so I expect it to be rejected, but am hoping they come back with a price they would accept (and also hoping the current buyer will play ball).

Obviously, neither has started foreclosure actions at this point. That would trigger actions on my part (chapter 13, whatever).

Will update once I have more info! If you have specific questions, let me know...
Thanks,
-A