Deed in Lieu, Short Sale or Foreclosure?

[TROMU]

I will like to hear from members regarding their suggestions/advice. I am a couple of months behind my mortgage payments due to layoffs on my job. I'm currently receiving unemployment but the amount is not even close to satisfy my monthly mortgage payments. I have been in constant touch with my mortgage servicer (Bank of America) to explain my situation. I applied for a modification but they refused me because they claim my debt to income ratio is high. Besides the mortgage and my student loans I don’t have any credit card debts. Please note that I have only a first lien mortgage loan(one loan with a PMI---Private Mortgage Insurance Company). Secondly, Bank of America has notified my PMI company that I am in default on my mortgage. So, I recently received a letter from a company contracted by my PMI company that they will like to help me modify the loan so i should send them my documents and they will then review it, send a copy to the PMI company before eventually sending it to Bank of America to reapply for another modification. I do not want to waste my time because I know they will eventually decline my modification and very positive the PMI company is trying to reduce their financial loss.What if i refuse to send them the same financial documents that Bank of America refuse me with the mod application, will they be able to sue me by claiming i did not give them the opportunity to save the house? Secondly, will that make them to decline a short sale on the house if i decide to go that route?

The reality is that the house is about $145K underwater with no equity and don't anticipate equity in the house any time soon. Therefore, if the bank will not work with me to fulfill my obligation under the loan terms, then I have decided to walk away. The loan has a PMI, but I am not sure if the Private Mortgage Insurance(PMI) company will pay the lender if I deed the house, short sale or allow it to go to foreclosure. Any thoughts on this and will the PMI company be able to sue me for any deficiency?

The loan is not yet in foreclosure but the notice of intent to foreclose will expire in 12 days. I also contacted the lender(Bank of America) to do a deed in lieu but they suggested I do a short sale because they claim the deed-in -lieu will affect my credit negatively than a short sale. However, my gut feeling is telling me that may not be true and are only looking out for their own self interest. Which is good for my own interest- deed in lieu or short sale? Anybody has an advice based on their experiences?
Finally, I contacted an attorney but he suggested i file for bankruptcy. I explained to him that i don't have any debts besides my mortgage debts and student loans. Secondly, the student loans are not forgiven in bankruptcy courts and therefore will not file bankruptcy for a worthless house. Nevertheless, he was not happy to my response. Please give me an input based on what you know.

[Angels]

By reading through all the posts on this site you will find that the banks typically don’t work with the bower. And most mods really are not beneficial to the homeowner because he still owes the same amount that is on the loan plus fees. Also, in some states, if the original loan was a non-recourse loan the mod automatically made it a recourse loan - meaning the bank can come after you for the deficiency should you default at a later date. I personally don’t see a whole lot of upside to a loan modification.

I'll try to answer some of your questions - the creditor cannot sue you for not giving them the chance to mod your loan. any documentation you send to a creditor can be used against you for collections so be careful on that front. a short sale is a separate process then modifying a loan so one does not depend on the other. For a short sale you have to put your home on the market for at least 90 days and once you receive an offer present it to the bank for acceptance. The bank will ask for documentation from you showing you cannot afford it. I would send in the same paperwork you already did. If the bank accepts they will send a contract to you for the short sale, which may include deficiency language. Read it carefully. Deed in lieu or short sale has same effect on your credit score and either process has to be accepted by the bank. In a short sale you do all the work. Deed in lieu the bank takes the house and has to do the work to sell it. For BK and based on the info you posed, your response is correct. If your only dischargeable debt is the house then it would not be to your benefit to file. If, however at some later the bank sues you for the deficiency then perhaps it would be worth doing. if you really are liable for the deficiency (depends on your state laws) the bank will try to collect through calls and letters, then sell the debt to a collection company after a period of time. The CA will then try to settle with you. Typically they will not sue unless they think you have something of value. Much cheaper for them to call and harass you for the money than to sue. Most people eventually settle for some fraction of the debt - provided it gets that far.

so here is the bottom line - do what is best for you and your family. The banks don’t care about you at all, this I promise. Foreclosure can easy take a year or more so use that time of not paying the mortgage to save money up. Read as much as you can on this site and post questions you have.

[Cat Damiano]

Hi TROMU,



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

For a modification in some cases the PMI companies are easier to work with than the servicer but whether or not to start the process would be up to you to decide. If you do not want to remain in the property than you may want to go the alternate route.

Here is the information regarding short sale with Bank of America and what they require that process would have to be dealt with before a deed in lieu would even be considered by the lender.

Short Sale Programs | Bank of America


as far as the impact to you this article gives some great examples:

How foreclosure impacts your credit score - Apr. 22, 2010


A foreclosure attorney would be best at answering any questions regarding deficiency. What state are you in?

[TROMU]

Thanks for your informative advice

[mrsedaddy]

I'm sorry to hear about your situation. I'm not certain what type of loan that you have, but we have 1 lien, 30 yr fixed FHA. We experienced something similar, and as soon as the first payment was late applied to the HAFA program with our bank. I didn't want to do a modification, just wanted to be done. All the modification would do was put us further underwater. This was in January 2011 and it took 2 applications and 1 rejection to finally be accepted into the pre-foreclosure sale program. We actually put the house on the market in January, but we were so underwater there was no way the house was going to sell for what we owed to break even. If you decide to go the short sale route, make sure you have an agent who really knows how to work the deal. We went through two realtors. We ended up with a third realtor who had an offer on our house in a two weeks. There are different opinions about pre-qualifying for the pre-foreclosure program with your bank. Our bank, PNC mortgage sent an appraiser out and then sent us the HUD letter telling us what to list the house for, and the NET that HUD would need to satisfy the loan. I actually did a lot of research and new that the house had to be listed at 85% of the FMV per the FHA/HUD requirements, and in reality we had it listed exactly at what the bank wanted. One of the realtors that we used who claimed to be a short sale expert, got really upset that we went the HAFA/pre-qualification route. He said we killed the deal. I felt it was mainly because he wanted the bank to get desperate enough to accept whatever offer he found. The longer the loan is in default, the greater the effect on your credit. We wanted to be done with this ASAP. I did that because I knew the bank would foreclose and I didn't want to have to go through multiple offers and lose a buyer because the net on the sale wouldn't be enough for HUD. Long story short, the offer that came in was exactly what the bank asked for and now we wait for everything to be done. Do what is best for your family.....our credit was not perfect, but until January had never been late on a mortgage payment. Everything else was OK. It is what it is. We were stuck in a bad business situation and unfortunately this was our only way out. Best wishes to you!

[TomEason]

TROMU

Thanks for your post. Please know that I have not taken the time to read your entire post. I'm responding to the thread title. The following is my view of the three distressed dispositions.

Here's my take on the DIL vs SS vs FC

In my opinion, there's no benefit in going through the throes of a short sale unless you're able and willing to stay current on your loans the entire time (up through close of escrow on your SS deal). Other than credit preservation, however, I believe SS is an onerous and futile process. Same with a DIL, which lenders hate to do, and thus have erected many hoops for borrowers to negotiate in order to effect one. If I come across as somewhat jaundiced, it's a result of my reading the posts and experiences of others.

1) DIL - Deed in Lieu of Foreclosure: This is a real ordeal since loan servicers don't like doing them, and hence make borrowers jump through a multitude of hoops to accomplish one. The homeowner is required to provide financials to the lender. And the homeowner can earn no $$ for all the hassle.

2) SS - Short Sale: Another solution that is a major pain, but the real estate industry loves and evangelizes them. The loan servicers also revere them because they know the homeowner will maintain the property in viewable condition. Meanwhile the homeowner gets no $$ for all their work and patience. Only reason to do one is credit preservation, and that is possible only if the homeowner has never been late on mortgage payments and can remain current through close of escrow of the SS deal. Another major disadvantage is that the borrower is required to disclose their financials, which is almost never a good idea, and is akin to pre-trial discovery.

3) Foreclosure: This is by far the least hassle. You don't communicate with your lender(s), aren't at their mercy, don't disclose any info to them. It's just easy. However, the downside is the derog credit hit. Recourse status of a 2^nd is immaterial because if the homeowner walks, and the 1st forecloses, the 2nd will be wiped out and become a "sold out junior." If that loan is recourse, they could conceivably sue you. But that’s just not happening. I've seen no evidence of any "sold out junior" lender in any state sue for money owed on the note, even though they're not legally barred from doing so.

[mrsedaddy]

I agree with the above but you have to consider your long term goals. If the ss works out you have a better chance of purchasing again sooner. 2-3 years with good credit behavior. Best wishes!!

[TomEason]

I agree with the above but you have to consider your long term goals. If the ss works out you have a better chance of purchasing again sooner. 2-3 years with good credit behavior. Best wishes!!

mrsedaddy
Thanks for your opinion, but we disagree. Can you give us the basis for that statement? Sounds like it can from the RE industry who always evangelizes that hype because they make commissions on SSs while the homeowners credit hit is identical. You evidently didn't read the article to which Cat posted a link, or else you read it and don't believe it. How foreclosure impacts your credit score - Apr. 22, 2010

[HopingtoFind]

Tromu, You haven't said which state you were in, that alone could make your decision a lot easier. In general people asking questions and trying to make decisions should always post which state they are in as that would decide if they need to worry about deficiency after foreclosure.

As far as PMI suing.... it might happen if the house forecloses and there is deficiency judgment, but there has not been a lot of evidence of that happening.

[mrsedaddy]

Hi. We are in Texas. I did read the article but wouldn't eligibility to purchase a home in the future depend also on the type of loan and amount of downpayment? For example FHA allows lower credit scores and different requirements than other loans. I can only speak for our experience. Regardless, it can only get better for us (based on our situation) from here forward. The original poster asked for personal experiences which I provided ours. We preferred to not walk away from our home and that was a personal decision. I'm a proponet for everyone making a decision for themselves and their families. I do not mean to sway anyone in any direction. Just attest to our experience thus farPerhaps I'm wrong but I read under the FHA guidelines about the possibility of purchasing again using FHA 3 years after a short sale. I don't intend to spread misinformation so if I am wrong please let me know.

[TomEason]

mrsedaddy

Thanks for your post. In your post # 7, you stated "...you have a better chance of purchasing again sooner. 2-3 years with good credit behavior." That appears to me to be an unequivocal statement, i.e. one without limiting it only to FHA loans, which you are now doing.

You say to let you know if you're mistaken, and that's what I did in my previous post. Not sure why you want to be corrected a second time, but here it is. Good luck to you.

[mrsedaddy]

Ive been reading this forum for several months trying to gather facts and a better understanding of other people's situations. The original poster asked other people's experiences, and I shared mine. I know that losing ypur home is losing your home and regardless your credit will tank and buying again will be more difficult. I apologize for not specifying I was referring to a FHA loan in my second post, and after reading the article that was posted (dated from 2010) I came back and was specific. One reason I dont participate in these forums is because of the tenor of responses such as yours. I didn't ask to be corrected twice, sir, but asked if the FHA information I read was not accurate. Perhaps if I misunderstood other people are in the same boat. As I'm sure you are aware, there is a ton of inaccurate information and often it's hard to tell fact from fiction. That's why I'm here, to learn. Thanks.

[TomEason]

mrsedaddy

Thanks for your post. Sorry if you took my comments personally. Disagreement on a public forum is to be expected. A fact based discussion is valuable. Words have meaning. If another member makes a statement that lacks support, that member will be called on it. You're not being singled out; if you're sensitive to disagreement, you might consider doing some research before posting a position, or, if not, abstain from posting. Good luck to you.

[TROMU]

The property is located in MD. I believe it is a state that allows deficiency unless I am wrong. The loan that I have is a conventional 30 year fixed with just one 1 lien.