Underwater House, Can Motiv.Seller avoid ShortSale?

Question

Hello BP,

I have a motivated seller who would like to avoid short sale, but has told me his house is worth 300K and he owes 600K!  Initial research shows comps are $425K but house, purchased in 2000 is trashed, neglected with high repair costs. Obviously need to verify lien numbers but wondered at first glance if there were any creative owner finance options for selling when seller is in this deep?Many thanks!

Brian Gibbons · Answer

Hi @Wayne Brooks

Love your posts too, I always read them.

See MyFico.com http://www.myfico.com/crediteducation/questions/foreclosure-alternatives-fico-score.aspx

Short Sales should be avoided if possible if credit preservation is important.

See IRS possible clawback http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief-Act-and-Debt-Cancellation-

I have friends in the employment verification business, short sale is a foreclosure, its hurts some job applications.  See http://www.loansafe.org/will-a-foreclosure-affect-my-security-clearance

Short sales are not a great idea all the time.

Wayne Brooks · Answer

Brian, I respect your knowledge and know that you promote L/O's, sub2's and such, but the above is somewhat of a misrepresentation.

-the negative credit effects of a short sale are generally less than a foreclosure.  In a short sale is more the number of missed payments than the actual short sale "event".  The reporting code is not the same.

-Employment security issues are related to a foreclosure, not a short sale, and Not the same thing.

-"Claw Back" is a little misleading.  Yes there is a possible income tax liability, from a short sale or a foreclosure, depending on the borrower's financial situation outside of the short sale.

Brian Gibbons · Answer

Careful,

-20% of $100K is $120K (Cleveland,  Pitt)

-20% of $900K (where I live) is $180K.

Cheap properties can be overcome at -20% neg. :)

Brian Gibbons · Answer

Short Sales hurt credit - FICO.

See http://www.myfico.com/crediteducation/questions/foreclosure-alternatives-fico-score.aspx

It is a foreclosure.

It hurts your reputation and you have to sign on Govt employment apps you have been through a foreclosure.

IRS You may owe money to the IRS http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief-Act-and-Debt-Cancellation-

To avoid a short sale,

-rent the property out,

-sell on sub2,

-sell on lease option,

sometimes better than short sale.

Account Closed · Answer

Why does the motivated seller want to avoid a short sale?

Joe Gore

Brian Gibbons · Answer

I just heard a great 30 min presentation from a short sale - bk attorney and a short sale Cal Realtor.

Listen to this, very good short sale info

https://www.youtube.com/watch?v=bWlJuBhaiA0#t=946

Big thing, go and get an agent, a tax advisor, and an attorney that has huge experience in short sales.

Brian Gibbons · Answer

And @Wayne Brooks dont get me wrong, all realtors dont do a reckless job regarding low equity and negative equity listings.

Short Sale Success is a maybe with the lender, with incredible delays, and the ramifications of doing short sales can be seriously detrimental.

BTW, I love CCIM Commercial Realtors, its a demanding designation to earn, and should be sought out doing commercial deals.

Wayne Brooks · Answer

Yes, I agree many, many agents misrepresent short sales. Many will be, and should be, sued at some point.  I always figured it will be the next wave for hungry attorneys.  Sueyourrealtor.com has been taken for a while.

Brian Gibbons · Answer

Should Realtors that list a Short Sale and screw the Seller get sued? Should they lose their license?

See http://massrealestatenews.com/short-sale-lawsuits-will-realtors-be-next/

I believe Realtors that have poor training in Short Sales that misrepresent their knowledge and experience should be criminally prosecuted.

What do BPers think?

Brian Gibbons · Answer

I agree with @Larry Chafe , getting a seller to contribute to "feeding a negative cashflow" but if the seller wants to avoid a short sale, with all the negative connotations of a short sale (hurts your credit - FICO, you have to declare on US Govt employment and loan forms that you went through a foreclosure, the IRS may "claw back" and say you owe money on the short sale, etc), but...

It is not impossible.  It all starts with a great house in a great neighborhood, good schools, etc.   The Buyer needs to sink their feet for 10 years.   The Seller needs to have a long look at fixing the problem.

Appreciation, PITI vs Rent Ratio, and principal paydown both are factors.

Master lease without owning is another strategy if there is a profit there.

Underwater House, Can Motiv.Seller avoid ShortSale?

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