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I am finding myself in a situation I never dreamed of (as are many Americans I know). I bought a great townhouse about a year and half ago for $175K in northern Colorado. However I haven't had a job since January. Luckily I had savings to get me through. I listed the home early in Feb for $183K and have since dropped the price to $180K. My realtor is saying I need to go to $175K. I still owe $178K on it, and am getting very close to not being able to make the mortgage on the house. I have money set aside to pay the realtor, but at some point, when do I decide to walk away if it doesn't sell asap?
That nearly $11K I'd pay the realtor is money I can live off of until money starts coming in again. Friends have suggested foreclosure saying "now's the time to do it" and the realtor mentioned short sale. I have thought about renting, but the mortgage is high ($1500/mo) for renter and I'd lose money every month renting.
How damaging is it to foreclose? Is short selling damaging too? Help!
While the technical details of having a "foreclosure" on your credit history are very similar to having a "short sale" entered, that is NOT the only thing that you need to investigate.
A short sale is something that you, as a borrower, are doing with the COOPERATION of the lender, so that they do not have to go through the COST and hassle of a full blown foreclosure. The details of the lender's legal ability to come after you for any deficiency resulting from the foreclosure ought to be something you investigate with an attorney familiar with the laws of Colorado.
Beyond the legal situation, you ought to explore what other incentives you can receive from the borrower as part of the short sale agreement, this incentives could blunt much of the harm that either a foreclosure or short sale would have on your credit / ability to recover from this set back.
Frankly I think that too few people have experience with short sales or foreclosures. This shortage of experience / knowledge extends to the bankers, attorneys, real estate agents and home owners. If you educate yourself and find attorneys that understand the implications, as well as find or educate the real estate agent you are working with, your "team" may be able to get the lender to make some concessions to you that will be in their best interest as well.
Thanks! I didn't realize there would be any legal implications; just thought my credit would be messed up for a long time. I have excellent credit now though. I would like to investigate the short sale option as I really do not want to head into foreclosure. Would the agent I've been working with receive his comission still in a short sale situation? I have been very frustrated as he has brought it maybe 7 showings since Feb. so paying all those thousands in cash would really burn.
Are you currently living in the property? Are your payments current? You say your credit is excellent -- If so I strongly advise you to try and put on the FULL COURT PRESS and get the lender to try to work with you to modify the terms of your mortgage.
This is a FAR better alternative than anything else, and I would tell any "friend" that is recommending foreclosure to basically get an education in how real estate works!
While lenders do not like to modify loans, they MUCH prefer that to the alternative of EITHER short sales or foreclosures, which COULD leave you legally liable for any shortfall from what you agreed to pay!
This is a very weird time, when LOTS of people have gotten themselves in a BAD PLACE with regard to what they owe on real estate and very few people have an understanding of how to help work things out so that lenders and borrowers BOTH get what they need.
I would seek out an attorney and possibly others (such as real estate agents and mortgage brokers, as well as legitimate loan modification specialists) who MAY be able to help. I am VERY skeptical that many of the people that CLAIM to have knowledge of the best way to help REALLY have your best interests in mind OR EVEN that they have experience with this. Honestly I have been involved in real estate as an investor and agent for over 20 years and I have seen NOTHING like this before. I would ask some hard hitting, almost RUDE questions to any one who claimed they could help:
What is IN IT FOR you?
How much of MY money to you intend to take?
Who else have you helped? PROVE IT!
What guarantees do you offer?
Why should I trust you?
Can I have your permission to run background and employment searches on you? (and the DO THEM, only way to know!!!)
Those are all super great questions thanks! I copied and pasted them! My agent has been really up front about things, but I know he really wants his fee so he pushes to just keep holding on. He calls to make sure I'm making my payments. I do not live in the home (I live 2 hours away now with my fiance), but all my "stuff" is still there staged. I am current on the payments and have never missed one although June will be tough (I still have HOA and utilities to pay too). What exactly shoudl I say to a lender? It seems so odd to call and say "Hi, I don't think I can pay my June mortgage, what can we do?" Do lenders ever reduce the mortgage? If I could get even $300 knocked off I could rent the place out and break even maybe.
You might be able to get them to accept a P&I only payment for a month or two.
Being upfront and honest with the collection department will make them a lot more willing to work with you than if you don't even bother to return their calls once your account hits that department.
I don't unfortunately. I bought the house under 100% financing with zero down in Nov. of 2007. Should I let them offer options or should I? Should I let them know that foreclosure is just around the corner?
You should call them and tell them your situation: you are not going to be able to make payments soon, that you have it listed and would like to talk about getting short sale approval.
This will speed things up later if you find a buyer.
That is great advice. I am hoping my good payment record so far and the fact it has been on the market will help me out. Do I still pay the agent in a short sale? I also heard about a "mutual walk-away". Not sure what that is?
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