No easy quick sales?
A reader writes: I have a friend that brought a JTS home in Wilton. He cannot afford the house payments, one is $400,000, the second is $20,00.00, both mortgages are through Countrywide.
He is now going to do a Quick Sale, where he states he stops paying on the mortgage and the real estate person takes care of everything. I read one place that the short sale is 60 to 90 days. He states they have 6 to 9 months and they don't have to make any payments on the house. Is this a better solution than foreclosure? Will this ruin his credit? What happens with IRS?
Thank you for your information. You can answer back in your daily letters. We really enjoy your articles. Mary Anne
Hi Mary Ann,
I haven't seen any "quick sales" since 2005. We have long-sales, no sales and short sales but no "quick sales." You’re probably referring to a short sale. As for the real estate person taking care of everything, your friend has misunderstood the agent's explanation of the situation or must believe there is a tooth fairy. No lender is allowing borrowers to skip 6 to 9 months of mortgage payments without consequences. Your friend needs to get a second opinion and/or get some understandings in writing. When homeowners can't make the house payment, it clouds their thinking. They sometimes get desperate and start believing in miracles.
Short-sales will commonly show up on future credit reports as a foreclosure, deed-in-lieu (of foreclosure) or charge-offs. They will all affect his credit for at least 3 to 5 years. No lender is going to be stupid about making another loan to a borrower who has recently defaulted on the last one. It will also drop his FICO credit score by 200 points. Missed house payment will also result in lowering your friend’s credit score and will remain on the credit report for a long time.
Many lenders will not allow short-sales. A short sale happens when the lender allows the home to be sold for less than the existing mortgage. The lender forgives the difference between the selling price and the existing debt. When there is a first and second loan on the property, short-sales are highly unlikely since two different investors must agree on the loan amounts to be forgiven.
Countrywide usually forecloses on homes rather than to wait around for a short sale. It’s usually faster than waiting for some potential buyer at some price to buy a $400,000 home in Wilton. What was your friend thinking? As with many lenders, Countrywide made the loan but sold it to an investment group. The investment group is now the holder of the note and will make the decision on whether to allow a short sale. I have seen lots of short sale listings but few short sales closing.
Congress is in the process of changing the law regarding the tax consequence of short sales. Your friend should check with his tax professional for advice on his specific situation. In the past, debt forgiveness was considered a taxable event and lenders issued a 1099 for the amount of the debt that was forgiven. There are no easy solutions without consequences to defaulting borrowers. Your friend should make sure he has looked at other possible solutions, like restructuring the existing debt, before looking for the tooth fairy.
He is now going to do a Quick Sale, where he states he stops paying on the mortgage and the real estate person takes care of everything. I read one place that the short sale is 60 to 90 days. He states they have 6 to 9 months and they don't have to make any payments on the house. Is this a better solution than foreclosure? Will this ruin his credit? What happens with IRS?
Thank you for your information. You can answer back in your daily letters. We really enjoy your articles. Mary Anne
Hi Mary Ann,
I haven't seen any "quick sales" since 2005. We have long-sales, no sales and short sales but no "quick sales." You’re probably referring to a short sale. As for the real estate person taking care of everything, your friend has misunderstood the agent's explanation of the situation or must believe there is a tooth fairy. No lender is allowing borrowers to skip 6 to 9 months of mortgage payments without consequences. Your friend needs to get a second opinion and/or get some understandings in writing. When homeowners can't make the house payment, it clouds their thinking. They sometimes get desperate and start believing in miracles.
Short-sales will commonly show up on future credit reports as a foreclosure, deed-in-lieu (of foreclosure) or charge-offs. They will all affect his credit for at least 3 to 5 years. No lender is going to be stupid about making another loan to a borrower who has recently defaulted on the last one. It will also drop his FICO credit score by 200 points. Missed house payment will also result in lowering your friend’s credit score and will remain on the credit report for a long time.
Many lenders will not allow short-sales. A short sale happens when the lender allows the home to be sold for less than the existing mortgage. The lender forgives the difference between the selling price and the existing debt. When there is a first and second loan on the property, short-sales are highly unlikely since two different investors must agree on the loan amounts to be forgiven.
Countrywide usually forecloses on homes rather than to wait around for a short sale. It’s usually faster than waiting for some potential buyer at some price to buy a $400,000 home in Wilton. What was your friend thinking? As with many lenders, Countrywide made the loan but sold it to an investment group. The investment group is now the holder of the note and will make the decision on whether to allow a short sale. I have seen lots of short sale listings but few short sales closing.
Congress is in the process of changing the law regarding the tax consequence of short sales. Your friend should check with his tax professional for advice on his specific situation. In the past, debt forgiveness was considered a taxable event and lenders issued a 1099 for the amount of the debt that was forgiven. There are no easy solutions without consequences to defaulting borrowers. Your friend should make sure he has looked at other possible solutions, like restructuring the existing debt, before looking for the tooth fairy.
posted by Ken Calhoon at 8:37 AM
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