I am in a position where I need to sell my house or I am going to lose it to the bank. I have been laid off three times in the past year and am now getting behind in my mortgage pmts. I have spoke with the bank about trying to work something out and the hardship letter is in the mail.
There is no way I can sell my home for what is owed - $122K. I live in Michigan and there is three other REO within a couple miles similar to mine for much less. If I were to short this home to the amount of $80-85K, we would be able to afford the payments and stay in the house. My question is, is there any potential problems with having my fiance be the end buyer for this short sale? We will be married in four months. Also, is this a decent figure to ask the bank to discount given the amount of REO in Mich? More or less?
Some would argue that what you are attempting is fraud. However, there’s different opinions on this. Some people say that as long as there is an arms-length transaction, then it’s ok to do. People have been trying to get out of big loans by short selling to family members for years, and lenders are pretty saavy about it and will freak out if seller and buyer have the same last name.
If affordability is your problem and your hardship is genuine, then the “right” thing to do is to short sale your home on the open market to any takers. Then get out of there and rent what you can afford temporarily. (By the way, it’s good that you’ve contacted the bank. They will probably give you some sort of “break” on the payments for a while, but will just add what you owe to the back end of your loan - so it’s not going to solve your affordability problem.)
If you have not been late yet, and can remain current on your payments until your home is sold, you, together with your fiance can buy one of those REO’s or buy another home in the neighborhood that is in the range that you and your fiance can truly afford.
A short sale to your fiance would not be an arms length transaction (imo). If you hid this fact from your bank they may declare fraud. A short sale is not about keeping you in your home, its about getting out from under a mortgage you cannot afford.
Thanks for the replys. The legal issues were something I was unsure about as well as the moral issues involved. It seems that the bank would still be willing to do it even though the buyer is my fiance for the same reasons they would want to do it with any other buyer, but I could also see why they would have a problem with it.
I’ve heard that a short sale on your record can reduce your score by about 100 points. Anybody have any experience with this?
“A short sale is not about keeping you in your home, its about getting out from under a mortgage you cannot afford.”
AMEN!
If properly executed, a short sale does NOT appear on your credit report at all. Your loans will be labeled “paid in full” or “closed account.” However, if you were ever late, the 30-60-90 will show up under that account.
A foreclosure will appear on your credit as a “collection/foreclosure” and does have more severe consequences as far as points lost. The formula for calculating your FICO is not as simple as 100 points for foreclosure, 50 points for late, etc. It is true that a foreclosure as well as collections take longer to drop off your credit report than lates or when you max out your credit lines.