Short Sale or Deed in Lieu
 

We bought our house 5 years ago with a 3 year plan to move. Obviously the market tanked during that time so then our house was completely upside down. I am not the type to walk away from something so I continue to pay my mortgage, never have missed a payment and never intend to. I feel a sense of obligation to stay because I agreed to buy the house, but on the other hand we knew it was a short term house for us, so now our needs have changed. But in order for me to sell my house I have to come up with 100k, which I do not have. We are pretty content with our house, it isn't much, but we knew as the kids get older we would want to be in a different place because we are on a highway. And the older they get the more they are active and in the future driving etc, and no way in hell I am going to let them try to learn to drive from our current house. So, owing more than my house is worth, what are my options here? Hate to ask this question, but any credit score or lending professionals on here that can shed some light on how either of these will affect credit and ability to buy in the future. Any other options? I ask because I probably don't have any other options at this point.

we kinda went thru this a while back. ended up renting our old house out, even net $300/month on it, and then bought a house in the area we wanted to move to.

we meet with several different "experts" and got all sorts of advice. none of it seemed quite right. the most common advice was go lock on the house you want, shuffle your assets around to protect them, then simply default on the current house or short sale it. that way you take the credit score hit after you have the house you want. we did not want to do that, so we went with the rental market for the old house. i'd like to sell the other house at some point, but right now it's passive income and the tenants are great.

The answer depends on what state you are in. You need to weigh your options against the remedies available to your lender in the event of default. Those remedies vary state by state.

can you afford two houses? If you can't swing both houses, you will need to sell yours first inorder to get approved for the new one. If you short sale it or walk, your credit will be hit for 7 years. If you have a short sale or a foreclosure on your credit, you can forget about getting approved.

Having said that, there aregovernment programs out there that can help reduce the principal.

Can I suggest a book for you?

Walk Away: The Rise and Fall of the Home-Ownership Myth
by Douglas E. French

Here is the complete book...

Not saying its right or not but not certain this is 100% true...i know two close friends who were forced to short sell for other reasons back in 2009. They have since purchased (after waiting 3yrs) and been approved to buy new places along with trucks & boats. 1 i believe used the same lender.

Negative trades show up for 7 years. That doesn't mean your credit is crap for 7 years. After waiting three, his/her score could have improved enough to qualify. It also depends on where the score was to begin with. Just saying you won't be able to walk away from one and expect to go buy another(as you shouldn't.).

Another way to look at is right now by making an over-market payment every month you are effectively renting your credit score for the difference between a market rate monthly payment (or rent payment) and the actual loan payment.

We short sold our rental house after negotiation with the bank and the holder of the second. We paid a small amount to the first, they in turn paid some to the second to release the debt. We never stopped paying or missed a payment. As of right now it hasn't hit our credit. I'm trying to re-fi my primary and a vacation home right now. We'll see if it has any effect. Be prepared to come up with a good excuse as to why you cannot afford to pay. We had to come up with a hell of a hardship letter (mostly all BS), but they accepted it. Our realtor was a pro and hounded the bank. Find somebody with experience on this. She'd done a ton of sales like ours and moved it quickly through their system. She told us it was possible. I hardly believed her, but she got it done.

Not 100% true. My wife and I shorted our house that we had been holding on to for 6 years (only living there 2) and bought another house within a year. We had excellent credit beforehand (800 each) and our credit has barely moved...I think it was like 780 when we purchased our new house. We had bought and sold another house in between as well. I think the main reason we were able to do this is because we had the in between house mortgage (not the short sale) with bank of america and do all our banking with them as well. We got the loan for our new house with them as well. They were the only company that would work with us after a short sale because they lend their own money (well, yours and mine) and do not go through Freddie or Fannie. At least thats the info I could gather after repeatedly inquiring about if it would be a problem (did not want to go through the time and hassle if it was going to be a problem at the end).

My advice on a short sale is work with a realtor and a lawyer. We were able to come to an agreement with both mortgage companies (yes, it was an 80/20 loan) to pay a fee and they would agree to not peruse us in the future for the remainder of the balance (they can do that even after they approve a sale). We ended up paying about 25% of the forgiven amount for this and in my opinion was well worth it. I am not sure if that had anything to do with the way it is reported to the credit bureaus or not, but I would also ask for that information when you negotiate with the mortgage co. I don't care what anyone says about a short sale...it is a business decision and only you can decide if it is worth it to you. Not something I want to go through again, though. We now pay cash for cars/toys, put 20% down on our current house, and have zero credit card debt.

Edit: forgot to mention that we never missed a payment either and did all the stuff Guido described...

Exceptions to every rule. In your cases it sounds like you came to an agreement with the bank and still paid some extra. I am actually surprised you were able to get anything done with BoA. I get probably three people a month that are in the middle of a refi with them that say they are tired of the crap and are willing to pay for an additional appraisal just to get it finalized and finished. In the end, there are no guarantees.

Be very careful with any disclosures you make to your lender. If they are not absolutely truthful you run the risk of fraud. The statute of limitations on fraud usually doesn't start to run until the defrauded party discovers the fraud. Most of the short sale documents I've ever seen also state that the representations made by the borrower are under penalty of perjury. So fudging also potentially exposes you to criminal sanctions in a worst case scenario.

If you are not prepared to be completely honest with your lender and give a full and fair snapshot of your finances, short sale is not for you.

I would also watch what you disclose on internet forums. Easily searchable and can come back to bite you in the ass.

The guidelines for applying for another mortgage change on whether or not you were behind on payments when the short sale closed-
Conforming loans - in as little as two years years with 20% down payment
FHA & VA - If current at time of short sale & no obligation entered to repay shortage there is no waiting period
FHA & VA - if delinquent -2 years for VA & 3 for FHA

How it effects your credit will depend on how the current lender reports it to the credit agency. Each one can be different..............