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YAAW - Yet another Arizona walker

Discussion in 'Deed in Lieu of Foreclosure - Do You Need Help to ' started by olivianphoenix, Jul 16, 2011.

  1. olivianphoenix

    olivianphoenix LoanSafe Member

    Thanks to everyone who has shared their experiences here, it has helped so much in alleviating my fear of this decision. Since I’ve got so much help from this forum, I’ll start my own story thread, since it seems some things have changed recently and my situation is a bit unique (as is everyone’s).</SPAN>

    I bought my house in AZ in April 2007. It was the first house I bought on my own following a divorce 3 years before. I negotiated pretty hard and prices had come down from the peak of the bubble. I felt pretty good about it and intended to live there at least 5 years. Of course life intervened 2 years later in the form of a great guy that I fell in love with. We decided to buy a house and move in together. By that time we were both upside down on our mortgages – his much more than mine. We found the house we wanted – a great deal on a short sale. I could afford it on my own, so he stopped paying on his house and put it up for a short sale. After about 6 months, we closed on the new house, fixed it up and moved in. I put my house up for rent and rented it in Mar 2010. This was so at least one of us still would have decent credit (my score is about 860). Since I have a demanding full time job, I used a property management company. After 3 prospective buyers reneged, my guy finally let his house go into foreclosure (more than a year after he stopped paying on it).</SPAN>

    Fast forward to now. The value of my rental has taken another nosedive. I’ve been losing about $400 / month for the last 15 months. I’m over $100 underwater. I’m 5 years or less from retirement. I’ve decided to walk away.</SPAN>

    So far I’ve talked to an attorney and a real estate agent to get info on options. I have an appt scheduled with a CPA next week. Here’s what I learned so far:</SPAN>

    1. Short sales are now typically taking 3 – 6 months rather than 1 year like they were last year. Banks (some) will even talk to you before you miss a payment and set the minimum expected price in advance.</SPAN>
    2. Foreclosures are typically taking 12 – 18 months. This is due to a number of factors. The Notice of Trustee Sale comes fairly quickly, 3 – 4 months, but then the sale gets postponed month to month for several months.</SPAN>
    3. If you do a SS, be sure to get the approval letter that states explicitly that the sale cancels the debt before going to closing. If you don’t have the letter, or if it isn’t clear that the debt is satisfied, don’t close – don’t sign anything!</SPAN>
    4. The house is mine and the lease remains in effect until I sell or the bank forecloses. That means I continue to collect rent and the renter can’t break the lease without consequences (lease term is through Mar 2012).</SPAN>
    5. Per my property mgt contract, I have to notify them when I get the Notice. If I don’t remedy the mortgage within 60 days, the contract is void.</SPAN>
    6. My landlord’s insurance says there’s no limit on how long the house can be vacant. (!!)</SPAN>
    My strategy is as follows: stop mortgage payments immediately. Put the rent money in the bank for possible taxes later (should not be much, if any, since I have significant loss). Talk to the bank about the requirements for SS – I don’t expect to qualify since I don’t think I have a good hardship case. When I get the sale notice, I’ll notify the prop mgt company and the tenant. I’ll probably offer a rent discount (similar to what I’ve read here that others have done) as incentive for them not to break the lease or just stop making payments. Wait for foreclosure.</SPAN>

    More to follow.</SPAN>
  2. olivianphoenix

    olivianphoenix LoanSafe Member

    Make that over $100K underwater
  3. WalkingTheTalk

    WalkingTheTalk LoanSafe Member

    Well i am tagging along here is YAAW on board!

    good luck!
  4. olivianphoenix

    olivianphoenix LoanSafe Member

    I had that discussion with a CPA. Very educational (and he didn't charge me for the consult!). It turns out my concerns about principal residence and the Mortgage Forgiveness Debt Relief Act were completely beside the point. Since I converted to a rental, it doesn't apply. Here's the bottom line - I paid $235K for the house, I owe $178K. If I short sale(for, say $100k), I'll get a 1099C for the difference between the amount I owe and the amount of the sale - $78K. Net loss, $157k = $235k - $78K. If I go the foreclosure route (1099A) the difference is $235K - $178K = $57K. In addition, I've had about $400 / month loss on the rental. All of that will be deductible when I dispose of the rental property. Sweet!!

    So now the decision boils down to getting it done quickly with minimum impact to my credit rating. My real estate agent checked with the mortgage company (IBPS) for their policies on short sales (without divulging anything about me). They said they didn't need anything up front. Once we have an offer, then I submit all the financials, etc., along with the offer. Simple. In addition, the accountant said he had heard that since I don't have PMI, the bank has no other place to go to get any return, so they may be more likely to go for a short sale. I did let the agent know that I do not intend to pay anything out of pocket at closing.

    Now here's the harder part. I have to let the tenants know what I'm up to. My agent said that for potential liability reasons they can't put a lock box on the house and that they have to give the tenants 48 hours notice to show the house and the tenants can refuse. Thus making it harder to sell. The lease goes through the end of March - we'll see what happens.

    I have an appt tomorrow to get it listed.
  5. olivianphoenix

    olivianphoenix LoanSafe Member

    Walking - Thanks! Luck to you as well.
  6. olivianphoenix

    olivianphoenix LoanSafe Member

    I have general question - on various threads here some folks don't want to do a SS because they don't want to give the lender any financial info. Given that most of that info is available from credit reporting agencies and the original loan app, why the concern? Am I missing something important?
  7. Cat Damiano

    Cat Damiano Mortgage Wars

    Because for a short sale you would need to prove a hardship and the financials that you are required to submit would include bank statements and tax returns amoung other items, which are not present on the credit report.
  8. Buckus

    Buckus LoanSafe Member

    You would be required to provide account statements, income statements, tax returns (which are not public record), paycheck stubs, listings of any assets such as vehicles, retirement accounts, etc. If they see you have, say, $250K in your retirement account, you'll likely not get a SS since the bank would ask you why you don't raid your retirement account to pay off the loan.

    And that's why, in my opinion, you should only pursue a SS or DIL if you literally have no other assets and don't make any money.
  9. WalkinAZ

    WalkinAZ LoanSafe Member

    The advice I have gotten from my attorney is that there is almost never any advantage in communicating with the bank at all, and in most cases anything you tell the bank will likely be used against you.

    Unless you are completely broke and/or have no job, it is extremely unlikely the bank will approve a short sale or DIL. The bank will try to offer you "assistance" with your loan in order to trick you into providing all of your current financial information. This way, they can more easily determine if it is worth suing you or not for any deficiency after they foreclose on you anyway. They have no interest whatsoever in helping you out. It's all about you helping THEM out, and having you do all of their work for them.

    Also, a short sale or DIL has almost exactly the same effect on your credit rating as a foreclosure. So there is almost no circumstance where aiding the bank in their research on you would benefit you.
  10. WalkingTheTalk

    WalkingTheTalk LoanSafe Member

    Good information to pass on thanks!
  11. olivianphoenix

    olivianphoenix LoanSafe Member

    Nothing much has changed since I filled out all that info when I applied for the loan, except that I have another mortgage payment and a new car payment, so they won't be learning anything new that would be to their advantage. Since AZ is non-recourse, they can't come after me on foreclosure and if they don't make the closure agreement completely cancel the debt, I won't sell - so I don't see a disadvantage there.

    On the plus side, SS are now taking a lot less time than foreclosures in AZ (3 to 6 months vs 12 to 18), so I get DONE and get to reset the credit rating clock sooner, possibly as much as a year. So, while I don't love the idea of 'helping' the bank out, I think it's not much risk and some advantage to go the SS route. Also, a really great REA (who has worked hard and done a good job for me in the past and for other folks I know) gets some income on the sale.

    Anyway, got the house listed and talked to the property mgt company. They're seeing a lot of this and took it very calmly and were very nice about working with me and the REA. Said they would talk with the tenants and explain everything so as prevent them freaking out, hopefully.

    A couple of weeks until the first payment is overdue.
  12. olivianphoenix

    olivianphoenix LoanSafe Member

    Updates: I listed the house, notified the prop mgt company, they notified the tenants. I also notified Seterus (formerly LBPS). Have had several showings and 4 offers. Luckily, one was from the tenants - which I decide to go with. Made a counter. So far just like a normal sale, except they want to stipulate that my lender provide a warranty. Not likely, but doesn't hurt to let them ask. Nothing from the bank yet, just past the 15 days late point.

    I've seen on other threads that banks are going to NOD quickly. However, I heard from my lawyer that they typically just postpone month after month and it still takes 12 - 18 months to go to sale.
  13. olivianphoenix

    olivianphoenix LoanSafe Member

    Not a lot happening until this last week.
    I've missed 2 payments.
    The tenants decided to make an offer (I had a total of 4 offers, and several more 'interested'.)
    I accepted the tenants' offer, and after the usual counter / counter / counter to get all the details agreed to, my agent submitted the contract, along with my financial disclosure to the bank. A note here, I only disclosed the minumum they asked for - e.g., I didn't include my 401k. Doesn't really matter, the stuff I submitted clearly shows that I can 'afford' the payment if I want to keep losing money for the next 20+ years. Up to them if they want to allow the SS or not.
    Side notes: The buyer's broker made a comment about getting an inspection and submitting all the findings as 'maintenance' requests to my prop mgt company. I notified the PM not to do any maintenance without checking with me first. Nothing has been submitted. However, the PM has decided to withhold enough from the latest rent payment to cover their monthly fee thru the end of the lease. The account statement didn't say what the amount was for - I had to call them for 3 days before I got through to someone to find out. Argh!! turns out that it's allowed under their contract.
    I recieved a letter last week stating that I'm in default (NOD) and that they intend to accelerate if I don't pay up by 10/20.
    The bank is getting the BPO (broker price opinion) for the SS done tomorrow, Sunday.

    I just saw on another thread that someone had a forclosure go through in 7 months in AZ. I'd been hearing 12 - 18 months.

    Guess the race is on - wonder if the SS will go through before the Forclosure? I don't care as long as at least one of them is quick!
  14. TomEason

    TomEason LoanSafe Guide Staff Member


    Thanks for your posts. The derog report on your credit file doesn't come off your credit for up to 7.5 years from the date of your first late. So, regardless which distressed dispositions you choose, e.g. DIL vs SS vs FC, the derog will remain on your credit file the same amount of time.

    You might visit this thread to read about the pros and cons of the various dispositions. Good luck.

  15. olivianphoenix

    olivianphoenix LoanSafe Member

    Thanks for the additional info. My main motivation, like many folks here, is to get done as quickly as possible, and right now the SS looks most promising.

    I imagine that most folks who are done don't visit much, but I would love to hear any experiences re recovering credit rating. The only person I know who had a foreclosure is starting to see his number go up after about 2 years, but still got turned down for a new CC. I 'hear' all the usual from financial pundits, but there doesn't seem to be any solid evidence backing up the assertion that your credit is tanked for 7 years after a foreclosure.
  16. Buckus

    Buckus LoanSafe Member

    Re: Credit. I am about six months post-foreclosure. I have applied for an auto loan about three times to see where I stand, and so far, no go.

    However, I have also gotten two store credit cards (Target, to get the 5% off since my family shops there often, and an Amazon card). Both are rather low limits, but I wasn't rejected.
  17. TomEason

    TomEason LoanSafe Guide Staff Member


    Thanks for your post. In accordance with the provisions of the FCRA, a derog can remain on a consumer's file for no longer than 7.5 years.

    But that fact doesn't mean the consumer's credit is in the tank for 7 years. On the contrary, if the consumer pays existing obligations as agreed, his/her credit starts gradually improving right away, and can substantially recover, even with a derog still on the file.

    I recommend you go to the source, Fair Isaac, who develops the FICO algorithm and owns the trademark. They will likely give you plenty of info to chew on.
  18. DanaLynne

    DanaLynne LoanSafe Member

    Derogatory credit can remain on a credit report for a indefinite period of time. When it gets close to the seven year mark the creditor just sells the debt to a new creditor and the time starts over. The seven year theory is an outdated way of thinking.
  19. TomEason

    TomEason LoanSafe Guide Staff Member


    Thanks for your post, but your statement is absolutely incorrect. The FCRA specifically forbids that type of stuff. I recommend you download and read it.

    If this has happened to you, you have recourse against the reporting entity per the FCRA. The FTC is the agency that enforces the FCRA.
  20. DanaLynne

    DanaLynne LoanSafe Member

    I politely disagree. I have been a Loan Officer since 2000 and read thousand of credit reports. Of course some bad credit does fall off, but a lot of accounts are sold to bottom feeder creditors and they continue to stay on your credit report.

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