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Here is the situation. My wife and I bought a house for $ 332k back in ’07. We bought a little more house than we could afford. On paper we could afford it but we are essentially house poor.

If we could sell our house we would but it’s probably worth like $ 230k right now so that would be impossible.

My wife really wants to do a short sale. She thinks that we can get out of the house and rent for a few years then buy again when the market hits rock bottom. She also thinks this will have a min effect on our great credit.

I think she is dead wrong. First why would a bank agree to a short sale when we both have jobs and can afford our mortgage payments. Second even if the bank agreed I think it would devastate our credit and who would want to loan us money after that?

I’d love to get some opinions on the matter… it’s not like we are facing foreclosure… we just got ourselves into a tough spot and my wife wants to get out of the market and pass our losses onto the bank

3 Thoughts on is a short sale a good way to get out of this crashing real estate market?
  1. Reply
    Zarg222
    May 18, 2011 at 9:04 am

    no guarantee the bank will agree to a short sale – especially if your are current with your payments – they probably won’t even consider it until you are at least 3-6 months behind – at which point – your credit would already be trashed

    the RE market is pretty much already at rock bottom in many areas

    even if you are granted a short sale – you may wind up having taxable income on the forgiven debt – and with $ 100,000 of forgiven debt, the federal income tax alone would be $ 25,000+

    AND your credit will take a major hit – for MANY years – the bank is not going to just “take the loss” with no negative effect to you

  2. Reply
    rswpbc
    May 18, 2011 at 9:56 am

    Simple answer your right she is wrong. After stating that here is an opinion that you might want to consider………

    If you were behind in your mortgage payments or upside down on your loan then you could ask your lender if they would consider a short sale. Your lender is the one who determines if they will accept a short sale or not. A short sale does not get you out from under the debt owed as it will show on your credit report. Even a foreclosure will not get you out from the debt owed and will show on your credit report. You need to realize that the “Promissory Note” is separate from the “Title” to the property, as they do not go hand in hand. They are two individual legal documents.

    Renting is detrimental to your situation because all the money is going to someone else versus going into the equity of your home that you own. Why give someone else money?

    As far as credit goes,please don’t play around with it. Once something happens on your credit that is negative, it can take years to straighten out. Would you want it to affect your entire life?

  3. Reply
    Heather
    May 18, 2011 at 10:41 am

    You’re speaking of a strategic default. This is the case with most properties in my area (Las Vegas).

    First, you have to have a hardship in order for the lender to approve your short sale, and the house being upside down is not considered a hardship. You would have to be able to make the case that you couldn’t afford it (job loss, income drop, medical, divorce, etc.). Without that the bank won’t approve the short sale.

    Also, technically you shouldn’t have to be behind, but usually your lender won’t offer you a solution until you miss at least 2 payments. They don’t consider you in trouble until that happens.

    If you do get the short sale approved, and manage to sell the house, your credit will take a 100-300 point hit. And it will take 2-4 years to get qualified to buy again.

    Also, make sure to find out whether or not you are in a nonrecourse state. That means some states allow the banks to pursue you for the deficiency, while others don’t. This means if you sell for less, the bank could come after you for the difference.

    Many people are doing what you’re thinking about. Make sure you understand the consequences before you decide.

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