If you owe more than your house is worth, what are your options?
One is that you can keep your home and continue making payments.

Eventually inflation will increase the value of real estate and you should be okay. This may take five, ten or fifteen years but it will happen. More inflation is pretty much guaranteed.
Of course, one can question the wisdom of paying every month on an asset that is falling in value and that is not worth what you are paying.

There is an ethical and moral issue here. I won’t touch that one because you have to do what you are personally comfortable with.
My job is to give you some options, and let you decide what you want to explore further.
Because many homeowners face further complications.
They cannot afford their existing mortgage. They may have an ARM that is resetting. Or a balloon payment that means a mortgage must be refinanced. But in today’s market that may be impossible.

For people who cannot afford their monthly payments and cannot refinance, and who owe more than their house is worth, a short sale may be the answer. More about short sales in a moment.
Deed in lieu seems preferable. In deed in lieu, you deed your house to your mortgage lender and that ends the foreclosure process. What could be simpler and more obvious?

But hold on.

The lender may still go after you in court for their financial losses. And they often report deed in lieu on your credit report like a foreclosure. Sometimes you can negotiate this.
But the simple fact is that lenders do not like doing deed in lieu of foreclosure, especially if you owe more than your house is worth. You have to realize that you think you have a problem (and you do), but your lender has a problem also.

And deed in lieu does not solve your home loan lender’s problem. They are not in the business of owning houses. If they accept a deed in lieu they must fix up your house and market it and sell it. That is a problem for them. It costs them many tens of thousands of dollars in additional losses.
You can solve that problem for them by doing a short sale. You sell the property to a buyer and the lender agrees to accept the proceeds that the buyer pays as full payment of the mortgage loan.

The mortgage lender may still come after you for their financial loss, unless you get them to agree otherwise. And the lender may make a bad report about you to the credit bureaus — or they may not. You can negotiate all this.
With short sales in lieu of foreclosure you are fixing the problem for yourself and for the mortgage company. They may take a loss but at least they get out of a non-performing loan. You get out from under and you can even buy another house with little or no money down and bad credit, if you know how to.

It is the best of all worlds given a tough situation.

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Some important items you will need to file for a short sale.

1. When submitting an application to your bank you will have to write a handwritten hardship letter.
2. If they ask you to sign a contract have it reviewed by an attorney.
3. 2 recent bank statements
4. 2 recent pay stubs
5. Copy of last years tax bill
6. HOA Bill
7. The most recent listing agreement if the house was listed to sell.

Let me try and simplify what these companies try and do.

They will have you make up a hand written hardship letter even if there is no hardship. They will tell you to make it very personal and emotional and some will even tell you what to write.

They lead you in believing they will buy your house – cash. What they wont tell you is what their real intentions are. They will take your house, list it at a reduced price, and try to find a buyer while the paper work is being submitted to the bank. On the contract they will list their company as the purchasing buyer and they will ask you to sign a contract with no price and say that they will negotiate the price with the bank.

They will try and do a dual close. What this means is that if they locate a buyer, the price that they have negotiated with the bank will be less than the buyer will pay therefore they profit the difference at closing. You have lost everything you have put into this house and here comes one of these companies who will make in some cases 100k or more off of you.

For arguments sake, say they have negotiated with the bank a price $100 that the bank will accept as the selling price. They will sell the house for as much as they can above the $100 price. This will all take place as soon as you sign the listing agreement with one of these short sales company. They get to profit the difference of what they have negotiated with the bank and what the buyer will pay.

What you need to understand that it is very likely the bank will give u a 1099 for the balance owed to them by you and this will increase the taxes you owe to the IRS. So these slick companies who you are led to believe are helping you are really not. Usually the first offer they make to the bank is around 50-60% of what you owe. Some banks who are overweight in real estate may accept those numbers leaving a hefty balance owed the bank. You must insist if you are going to do one of these is to include a clause in your contract to the bank, that they NOT HOLD YOU responsible or give u a 1099 for any difference of the selling price and what you owe.

For you to get the most value out of your home, list your house with an experienced short sale Realtor who will try and get you the maximized amount for your house. The Realtor will negotiate with the banks in your best interests, not to maximize profit for his/her company. The higher amount the Realtor could get from an interested buyer, ultimately will help you in the long run if you are upside down on the loan. If the bank issues you a 1099 you want to make it for the least amount as possible.

This decision is a very important decision.

If you decide to use one of these companies ask them how much money they will be making off the sale of your house at closing. Don’t sign a listing agreement with them, and watch how fast they wont buy your house.

Why should one of these companies make money off of you and than you will owe the bank more when the house sells if he bank does not release you.

Make sure they put a purchase price in the contract and don’t leave it blank.

Don’t mislead the banks with phony hardship letters. If you cant make the payments than thats what you use. As always be very careful when giving out your personal information like social security numbers, bank statements, pay stubs, date of birth. Know the person or company and research and check to see if they are a legitimate company.

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