Distressed property - short sale??

I Can See Neptune

LoanSafe Member
Mar 19, 2012
7
0
1
So Cal
Bought property in mid-2005 for $869K
1st: $696K on 5/1 IO, sold to CW/BofA
2nd: $145K sold to Citi. All used on repairs/improvements but must be a recourse loan.
Peak valuation: $1,070K
Current valuation: $465K

Owe on 1st: $670K @4.85% on fixed term of 25 years after painless mod at BofA's suggestion.
Owe on 2nd: $130K @6.99% 30 year fixed.

If the house was perfect, we would be $335K underwater.

Septic system is failing and replacement costs are estimated at >$100K (For those of you in normal parts of the country, yes they really do get away with this type of legal theft in California).

We moved out last year and can only get $2,700 to 3,000 per month in rent.

Between taxes, mortgages, insurance and maintenance, we are losing >$3K per month. The failing septic could turn this into $6K if we can't rent.

We have never missed a payment on a parking meter, let alone a mortgage, but don't see any way to recover from this.

We read Tom Eason's tips for settling second. Scares the hell out of us, but makes total sense.

We have between $30K and $180K equity in our principal home, depending on which site we use. By IRS definition, we are technically insolvent. We could fix the septic or pay the second but couldn't tackle the gap on the first.

Does the septic failure and insolvency constitute a hardship or will the bank just look at W2s?

Is the credit impact of settling just first better than settling both?

Thanks to all for the great info you have provided on these boards.
 

Cat Damiano

Mortgage Wars
Sep 10, 2007
10,541
39
48
Colorado
www.loansafe.org
Hi I Can See Neptune,


Welcome to the forum and thank you for joining...........


The strategy guide is useful if you want to keep the property which it sounds like you do not want to do. There is a good discussion thread on the difference between short sale, deed in lieu, and foreclosure here;

http://www.loansafe.org/forum/short-sale-outpost/43265-ss-vs-dil-vs-fc-comparison.html


I would also suggest you look around the following sub forum to see what others in a similar situation in CA are doing;

Deed in Lieu of Foreclosure - Do You Need Help to Walk Away?


I am sure others from CA will chime in as well.
 

I Can See Neptune

LoanSafe Member
Mar 19, 2012
7
0
1
So Cal
Long time between updates - here is where we are.

Tenant moved out in March 2013. BofA didn't look anywhere close to initiating foreclosure. We were approached by Dignified Transition Solutions to do a HAFA short sale. I thought it was a scam and that we wouldn't qualify, but we did at pre-approved price of $635k.

The initial buyer eventually got scared by septic issues and withdrew his offer. BofA immediately dropped price to $559k but second buyer couldn't qualify for that much and we timed out on HAFA sale period in November 13.

Our awesome realtor kept up negotiations with both banks and got approval for $519K, which second buyer can do. We just opened escrow.

The amazing thing to me was the second mortgage company kept the HAFA terms. They will get $8.5K from sale proceeds and will not a deficiency after the sale. We will expect a CODI/1099C from second mortgage.

We are keeping everything crossed that this really is the end of the story and we can move on with our lives.

Thanks to all on the forum. I can honestly say that the advice here was of higher quality than lots of paid advice. If you are thinking about engaging YouWalkAway or similar services, save yourself the money for good lawyers and CPA after educating yourself on the LoanSafe forums.
 

I Can See Neptune

LoanSafe Member
Mar 19, 2012
7
0
1
So Cal
Final update - it's over! Property sold yesterday, second mortgage holder was paid $7500 from proceeds and agreed not to pursue deficiency.

it was against my better judgement to disclose financials but we would not have got here without it.

Having a trust-worthy short sale agent made all the difference.

just the tax return left to figure out next year and this chapter is closed completely.