Profile picture for follyjune

Short sale on old house after buying new?

I posted this in another area of this site, and now realize this is probably the better forum to post it in. My apologies for the duplicate, but I couldn't figure out how to change the category.

First off, we are not one of those 'buy and bail' stories that everyone talks about. We had to relocate because of my husband's job 6 months ago. We were able to qualify to buy another home in our new city - we actually downsized - and although we knew it would be tight, we figured we could get by until the old house sold. We've continually been told the price on our old house was too high, so we've been doing price reductions. Still nothing. I lost my job last month due to circumstances beyond my control. We can no longer afford both mortgages. Will we be able to do a short-sale on our old house, and will it affect our new home?

A few more details: We have a 1st mortgage on the old house and a HELOC. We believe we will be able to sell for enough to cover the 1st, just not the 2nd. We are more than willing to live up to our obligation to continue paying on our HELOC. Will they work this out with us? It is w/ PNC Bank, which I've hear they are diffictult to work with. I know a short sale is no walk in the park, and I know it will be a long hard road. I am prepared for that, and the hit we will take on our credit because of it. I am thankful that we are in a new home already because of that. But are there repercussions that I am not thinking of? I just don't want to lose our new house because of the old house.

  • May 18 2011 - US
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Answers (9)

Profile picture for ShanSaigal
Sorry to hear about your circumstances.
Since you have a genuirne hardship situation, the creditors may do a work out plan for you.  It also depends on the law in the state you had the property re. what the lenders can do, since this looks like a purchase money loan.
The Heloc is the tricky one, as they may want some money.  I think if you do the short sale, and you have a hardship situation due to job loss, the heloc may be willing to write this off. 
Best of luck.
Regards
  • June 09 2011
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I'm sorry to hear about your situation.  If you are able to mitigate loss, then you are doing the bank a favor.  Good luck.
  • June 07 2011
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No. You can if you like, but theres not much they will do for you til you have a buyer.
Since the full release is so important  - I really would recommend you find someone else who has experience negotiating these with the lenders. A realtor or even a lawyer - but one with experience and success in short sales specifically. This is no time for your realtor to learn the ropes. Not when your financial future is at stake. Good luck.
  • May 19 2011
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Profile picture for follyjune
Yeah, we don't want to have to walk away from our obligations. Just need to get out of the old house ASAP. I would sure think that the bank would rather have an unsecured promissory note than nothing. We are currently in a 1 year contract with our realtor, and I know she is not experienced with short sales. I will have to talk to her and see if she will release me from the contract considering the situation and what we need to do. I can't afford to have someone inexperienced working on this. Do I need to contact the bank to discuss this with them before we list it as a short sale?
  • May 19 2011
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This sounds totally doable to me. What you need to do is get this house on the market with AN EXPRIENCED short sale realtor ASAP. Whether you get a full release of liability will depend on your state laws as well as how the short sale approval is negotiated - GET THE RIGHT PROFESSIONALS FOR THIS.
Im thinking worst case scenario here is  the lender asks you to chip into the loss via a cash contribution or promissory note, and it sounds like you're open to that.
If you end up foreclosing or cannot negotiate a good settlement (ie full release) out of this, and your state laws allow it, the lender may in fact pursue you for the loss and put a lien on your house/wages, etc.... What that means is your old debt follows you around and is attached to your new house until you pay it off or settle it, file bankruptcy, or they foreclose on your new house to collect.
This is highly unlikely if you take immediate action to try and solve this before it reaches that point.
  • May 19 2011
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Profile picture for follyjune
So what does that mean when they place a lien on our new house? Our current lender already has it's own lien on it for the full amount (less our small down payment). How can they put a lien on something that already has a lien on it? What does that mean to us then? Should we care?
 
As far as other assets, well, we don't have to worry about. We've burned through everything we have trying to keep everything current. Literally, all we have is the house we're living in, and our vehicles to get back and forth to work. No cash in savings, no CDs, investments, or anything else except our (small) 401k plans.

Thanks for the advice. We will talk to an attorney in the coming weeks. When the banks start to become heartless and look at it as purely a financial decision (and they have the right to not want to work something out with us), then I guess I will remove the emotional part of it on my end and look at it as a business decision on my part as well. If they would treat people with a little respect and compassion, I think they would get further and find that some people might be more willing to work out a way to get them their money, even if it takes a little longer. But they want to start out with threats. Life is short, and we've been through so much lately that has taught us that there are more important things in life than money, and I am going to take a stand and say that I am not going to let a bank that is being stubborn dicate my happiness or threaten me. Off my soapbox now...
  • May 19 2011
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Profile picture for sunnyview
I understand that this is difficult situation and I can image how stressed you must feel. Your first priority needs to be getting the bank back as much money as possible. This helps you because it makes any deficiency judgement smaller if your state has them and it makes it more likely that you can negotiate with the bank to give you a full release of the old mortgage if your amounts are close.

The issue with the new house being liened depends on your state. Some states allow it after foreclosure, others  states the law is that once they take the house back that is all they get to take. You would need to check with an attorney to see what your state laws are.

As far as your credit goes, it will get rebuilt no matter what happens. I have talked to people who have recovered their most of their credit score about a year following a foreclosure. Short sale is often preferable to foreclosure for a variety of reasons so it is worth trying to cut a deal with the bank.

I know it is tough, but many people got caught in this mess. Try to get all the information your can and then put your hardship documentation together for the bank. You may be able to work something out while stying current on payments, but I have heard that PNC is difficult so I wouldn't count on it. Get the laws for your state, make your plan and do not feel guilty because of your change in financial circumstances. Do what you can to move forward. Things will get better.
  • May 18 2011
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Profile picture for follyjune
I totally understand that the bank will not look upon our situation favorably. I feel like my hands are tied because I am not actually trying to 'short' anyone anything. We are more than willing to pay as agreed on our HELOC, although I understand it becomes an unsecured loan. We're not talking really big bucks, as compared to other stories I've seen. Our HELOC is $25,000.

You say that the bank will be less willing to work with us because we purchased another house. So what other options does that leave us? Would they rather foreclose? Because we simply cannot keep current on the payments. No matter how much they stomp their feet, it is not going to change that fact. And I guess I'm at the point that if they absolutely won't agree to a short sale, then they can foreclose. I am so stressed out over this, that the 'threat' of ruining our credit is not worth my sanity and how miserable it is making my family. I just really want to know if they can do anything regarding the house we're living in now?
  • May 18 2011
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Profile picture for sunnyview
Complicated question. The bank will see your new house and may look at the situation like a buy and bail even if that is not what you intended. If you are living in the new house, the old one is no longer owner occupied so the bank may be less willing to work with you on a short sale. Whether the bank can follow you to your new house for what you owe on the old one depends on your state.

It sounds to me like you may qualify for a short sale on the old house, but the bank will not like the fact that you bought another house. You need to find out how much your can sell your house for right now within a shortish time frame. There is law discussed here that I believe expires at the end of the year that forgives the tax "gain" on a short sale so that you do not get a bill for it. You need to write a hardship letter to the bank stating the job loss, the relocation of your husband's job and your inability to sell at the price you owe. Include your current listing information and any proof you think would help the bank decide to allow a short sale.

You also need to consider doing a 1 hour consult with an attorney and/or CPA to make sure that you know all the consequences of short sale upfront before you decide what to do. It is tough situation, but it is worth seeing if you can get the bank to work with you.
  • May 18 2011
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