I bought my house 5 years ago at the peak of the housing market and live in MD. I have a NC interest only 10/1 ARM and have been unsuccessful at refinancing or any loan modification over the last 2 years. My husband has an opportunity to attend a PHD program in FL in the fall, so that means moving, I have to switch jobs and he stops working. We would be looking to sell the house for about 120K less than what we bought it. That will eliminate the 50K we put down and would need to come up with another 70K to pay the bank back. We are current on our payment and we are attempting to do a shortsale and if it isn’t approved we will be considering foreclosure. The loan is only in my name so we feel like we can still get credit based on my husband. We have considered renting our house while he is in school but then we are stuck with the 10/1 ARM adjusting and it will start to amortize which we can’t afford those payments. So it seems like the only option is short sale or foreclosure HELP!
Any advise on getting a shortsale approved? I heard to be successful at a shortsale you have to stop paying, is that true? If so when should I stop paying. How often does moving for school qualify as a shortsale? We have 100K in the bank, are they going to look at that and say we don’t qualify? If we go to foreclosure, I heard that if you move out of state they can’t come after you legally, is that true between MD and FL?
Based on the information that you provided, it does in fact sound like you’re heading down the right path, and short sale will probably be your best option. I will do my best to answer all of your questions.
Should you fall behind on mtg payments? Maybe. I have found that it certainly does help with a short sale approval if you’re past due. I have also had short sales approved while the homeowner remains current. The difference I find is that many of the lenders will drag out the review process while you remain current, and they tend to move a bit quicker when past due. The other issue that comes up when current… the bank is more likely to ask you for something in return for allowing the short sale. They may not offer to waive the deficiency, they may ask for a promissory note, or ask for a cash contribution from you as a condition of approving the short sale. Of course if you fall behind on payments, you’re credit rating will be damaged, and if it goes on for long enough, you may eventually face foreclosure. To fall behind or not is up to you, and is a decision that only you can make.
As for the timing of missing payments, that’s also up to you. With credit-conscious homeowners, they often maintain their payments while their property is actively being marketed for sale, but prior to receiving or accepting an offer. Once an offer is rcvd, they will stop making payments while the lender reviews the offer. It typically only takes about 30-45 days for them to review it, and if all goes smooth, they may only miss 1-3 payments before the property sells, minimizing the damage to their credit score.
Relocating out of state most certainly would be a valid reason for hardship. A secondary hardship that you may want to use is the fact that your husband’s income will be drastically reduced by this transition also.
The $100k in the bank will be your biggest problem. As part of the short sale review, you will be required to provide a copy of your latest bank statements. If you are asking the bank to forgive $120k deficiency on one hand, but showing them that you have $100k available on the other, they are most likely going to want some of that (in my experience). The question is, how much? This can always be negotiated as part of the short sale approval, and the goal of your broker should be to negotiate the lowest possible amount they will accept.
If the property eventually does go to foreclosure, and you move out of state, I believe that you would still be liable if the bank wanted to come after you. Don’t take my word for it though, I don’t know for sure, and this would be a great question for an attorney in your area.
The best thing going for you, is that the mortgage is in your name alone. Your husband will not be affected by a short sale, and you’re correct in your aim to keep his credit as clean as possible. Moving forward you will be able to use him for credit related purchases, while you work to rebuild yours.
In conclusion, I still believe that short sale trumps foreclosure any day as your best option. But you should start preparing yourself for the possibility that your lender will ask for you to contribute in some way. The goal should be to minimize that as much as possible.
Good luck, and please keep us posted on how you make out. If you have any other questions please use the comment section below and I will try to respond as promptly as possible.
Andy is a licensed real estate broker in Massachusetts and is the founder of Northeast Properties in Norton, Massachusetts. His brokerage is designed to help homeowners in today’s difficult real estate market, specializing in short sales. Andy speaks with Massachusetts homeowners every day, helping them to address their questions or issues with short sale or loan modification. He enjoys helping consumers arrive at the correct solution to their problem, and believes that the only way to correctly do that is by presenting them with all of their options in an un-biased manner.