I’m going through a short sale with an investor, and he submitted a final offer, which the LM officer sent to the decision makers last week. I got a call last night from the person the file was forwarded to, and she said she expressed concerns.
She explained about how huge their loss would be, ($70K less than what I owe) and the tax consequences that go along with that. I told her that I was aware of this, but would try to deal with that when the time came.
She then went on to offer me an “unsecured note”, which as I understand, still cuts my ties with the house, but I would be making monthly payments for a looooong time. I asked her to explain a bit more, and she said that it shows good faith that I’d be at least trying to pay back some of the debt. The figure that she gave me was close to $400 per month for 8 years!!! Are they kidding? If I had that kind of money, I wouldn’t need a short sale in the first place!! I told her there was no way I could pay that, and she eventually same down to $167 per month for 10 years. Now call me crazy, but this added up doesn’t even take a big chunk out of the shortfall anyway, so I can’t see that it’s worth breaking myself even more in the future.
Anyway, I kept asking her if my ability to pay “something” would affect the decision on whether or not to approve the short sale, and she never did give me a direct yes or no. She said it had to be reviewed futher by VP’s and such and, again, it showed good faith that I was trying to resolve this because the loan is only a year old. I wasn’t just making excuses to her, we’ve racked up so much debt because of money problems with other people living in our home with us, that it’s going to take a long time to get back to normal.
Does anyone have any experience with this, and does it sound like a last ditch attempt for the lender to get more money from me? Anyone had a short sale rejected for the owner not being able to afford the unsecured note? Thanks in advance.
I have never heard of this type of offer before. $167 per month for 10 years equals only $20K. I don’t see how that will be a satisfactory payoff to the Lender.
Who is the Lender, how much do you owe them and what is the FMV of the house?
I just talked to this lady again, and explained that we can’t afford to pay any of the shortfall, and she was kinda mean and said that the chances of this being approved are grim, and dropped the F-word (foreclosure) a couple of times. Basically driving home that if it doesn’t get approved, that’s what’ll happen. Well, duh.
I then called the investor, and he said that he’s seen this quite often, and they use this as a scare tactic to try and squeeze every last penny out of the owner. We’re not out of the woods yet, but hopefully we’ll have a positive outcome despite what she said.
The rest of the short-fall may be covered by mortgage insurance and the $20k may be just what they need to fit this deal into their “guidelines”. I’ve seen these where the lender doesn’t truly see a hardship (by their definition, of course) on the part of the homeowner so they play hard-ball to get the unsecured note. Of course, you can play hard-ball too and tell them they will have to take the house at foreclosure, which would add X numbers to their holding time, and X dollars to their holding costs.
Also, know that one can always try to negotiate that down as well. They went from $400 over 8 years, down to $167 over 10 years. Maybe they will take $100 over 10 years. Finally on this point, these unsecured notes that I’ve seen are usually interest-free, so stretching it out over a longer term is better for you, due to time value of money. Owing $75 over 15 years (this is just an example, of course) is better for your debt-to-income ratio if you decide to buy another house or buy a car in the next few years, than owing $400 for 8 years.
How much time do you have until the sale? If you have enough time, one option is to drag it out until December, then play hard-ball with them. They may have a stronger desire to close out the file by the end of the year.
By the way, when you get around to facing the tax consequences, research that thoroughly. I am no expert but the IRS has provisions for such a thing, and it can reduce your tax liability.
This is not legal advice; just one man’s opinion. I wish you luck.
Thank you all for your input. Some interesting advice that is helping me to understand their reasons for asking for the note.
We don’t have a sale date as yet, but we are now 2 payments missed, and in no way able to catch up, as our utilities and other bills are also behind. Hopefully they are motivated enough and they realize we can’t afford it anymore.
Does anyone know how much banks lose through foreclosure, as opposed to short sales? (On average, based on the figures for my situation)
i cant remember exact numbers of what banks lose but more often then not if they accept 70% arv that is close to what it would cost them to go threw it all but i remember reo consultants at one time posting for every 1 dollar they have on the books meaning repo houses they can’t lend out 7$ so this should be a motivator as long as its not a fha loan which in that case they have insurance on their loses