BiggerPockets

Here is my situation: my house is in Chicago area. I lost my job and found a new one out of town, with a much reduced salary. My wife is working and staying in the house. We can't really afford the mortgage and my living expenses in another town.

I have been trying to talk to my lender with very little response as expected. We would like to stop payment and negotiate with the lender and get a modification or a short sale approval. However, we will face the consequence that if we don't get either in time, the house will be foreclosed. We don't want the house and don't mind the credit score but the debt after the foreclosure judgement is something we don't want to see, and don't want to see our asset seized by the lender. Our house is purchased at $600k with about $535k loan amount left, not sure how much the house will be bought at auction. I have a conforming loan and a line of credit.

I do think that the bank doesn't want the house and will negotiate with us but don't know if we should risk it. We can bleed through teeth and pay for the mortgage but we will burn all our cash and savings.

Advices are highly welcome, especially experience with foreclosure/short sale in Illinois. This process has taken a lot out of me, I hope we can survive this.

Thanks for the quick reply. I really appreciate it.

My loan is with Chase Home Finance and LOC is with Harris Bank. I have submitted my Hardship letter and the documents and got a note after 3 months. I called them many times and not much happened other than the receipt.

Also, isn't it automatic that the residual debt will be transfered to the borrower since these are not non recourse debt in IL?

Thanks again?

The first loan has about $407k left. The LOC has $128k left. The reason I have two loans is because of the high amount of the loan balance. The purchase price was 608k. It has been listed as a short sale for a few months but with no offers.

How will the bank and the court make the decision? Come after me if I have income and asset? Leave me alone if I am broke and unemployed?

Is it more likely for the LOC holder to forgive the debt than the loan holder?

Thanks.

If its been listed for a few months with no offers, the price is too high. You're going to get nothing on a short sale, so get it priced to move.

The HELOC holder is going to get hurt much worse than the first. You still haven't said what its worth, or when you purchased. So I'll guess you bought it at the peak, which was Sept 2006 for Chicago. Case Shiller data shows a 27% decline since then, so I'll guess your house is worth about $440K. If you sell it for that, after costs, there will be around $400K, depending on exactly how much seller concession you have to give. The HELOC lender is going to want something. But they might take as little as $10K. That would leave $390K to pay off the $407K first. The first lien holder should be quite happy with that payoff. They will lose much more in a foreclosure. Not sure exactly how IL law works, but seconds are in a very weak position. In many states they get wiped out if the first forecloses. Here in CO, they have redemption rights, but they would have to pay off the first, which is unlikely.

If the lien holders agree to a short sale, you can probably get them to agree to take whatever they get as "full and final payment". Meaning they agree not to come after you. If you can show you have no assets and limited income, its likely they will agree. If you have a pile of cash socked away somewhere, they're going to want some of that.

The first step is to get this priced correctly and get an offer. If its listed with an agent, they should be the one working with the lenders. I'm pretty skeptical that most agents really know how to do that. Its just not part of the listing agent job description.

Start by figuring out what price will make this property move. Call your listing agent this morning and say "I want an offer on this house withing 30 days. What price do we need to get that? I want to cancel the listing agreement if we don't have an offer in 30 days. What price do we need?" Then, get the package described above together, along with a HUD-1 prepared using the new price (the agent can do this) that will show their net. Get this over to the two lenders and start the ball rolling.

Frankly, that's a terrible pricing strategy. Once the homes been on the MLS a long time, people just aren't interested.

What does your agent say its worth? Do they have comps that support that price? Get it priced to be the best deal in the neighborhood right away. You're going to get nothing on the deal, so the price to you is irrelevant. If my estimate of $440K is in the right ball park, you're still overpriced by $75K, and you won't get any offers at that price. At 10K every two weeks, you're six months away from getting it priced right, and by then you'll probably still be too high.

You could try the strategy banks are using. If its worth $440K, put it on the MLS and $400K and hope for multiple offers.

I'm not a lawyer and know nothing about IL law. You need to find a local advocacy group (not invetors) who can explain to you what might happen. If you really want good advice that will stand up in court, you need to hire a real estate attorney.

But, knowing what will happen won't help. You need to get rid of this thing. Get it priced right and get it sold. I guarantee you'll have a signed contract tomorrow if you put it on the MLS for $1. And that will net you just as much as the price you have right now. Call you agent. Say "I want a contract in 30 days or I cancel our agreement, what price do I need to use?"

Jason, the only way you can sell your house less than what it is worth is to get an approval by both of your lenders. If you have your house on the market without getting a short sale approval then you are just wasting your Realtors time. When you submit a request for a short sale not only does your lender require you to submit hardship and financial documents, they also want a copy of the MLS listing ticket, Comparable Market Analysis, and a seller net sheet from your Realtor. After your short sale package is submitted it usually take the bank several weeks if not months to approve your short sale. They will ultimately tell you if you are approved to sell your house for the listed amount on the MLS. So my advice to you is to get the short sale package together for both mortgages you have and think about other alternatives. And don't forget, you also have to negotiate with your second mortgage the same way you are negotiating your first. My experience has been with homeowner who have a first and second mortgage is they rarely are approved for a short sale or a deed in lieu of foreclosure because of the second mortgage that is attached to the property and it makes it a very difficult task for the banks to resolve.

Hi Jason, which part do you disagree with? I'm in Michigan and remember laws are different in each state. Also, I am currently working with a short sale as we speak. I am only going by my experience with short sales.