So I am in a bit of pickle. So my wife and I bought a house 3 years ago. We paid x amount of money on it. Now our house is worth (x- 70,000 ish) So we have lost our butts on the house so far. We are making our payments just fine. But then there is this thought that if we were to short sale our house, we could have an opportunity to move into a different house, that is “better” and much cheaper. So… we save money (thousands) by getting into a house at the current value, we get a newer bigger house. Here is my dilemma: 1) is this ethical? 2) is it possible? 3) why would the bank do this? 4) is it smart?
If you know anything about the housing market, short sales, ethics about this issue, then please chime in. I am open to opinions and facts!
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May 20, 2009 at 5:28 pm
robina
The best person I can think of to talk to is Shar Rundio.
May 20, 2009 at 10:10 pm
Obie
Hey man,
I don’t know a whole lot about it but I do know a couple things. First off a short sale will damage your credit, not as much as a foreclosure, but from what I understand it will stay on your credit for around three years. This could make it more difficult for you to purchase a new house and you may end up needing to rent for a little while until you can qualify for a house. That alone, at least for me, would be enough to avoid a short sell, especially if you can currently afford your payments. You really haven’t “lost” any money on your house until you sell it. The market will rebound, probably not as much as it was but if you can hang in there for a bit longer you may be in a better position in a year or two. The flip side of that is the housing deals that are available now will not be as good.
Banks allow short sales because it is better for them than a foreclosure. With a short sale they stand a better chance of recouping a larger amount of their original investment, than they would if the house had to be auctioned off later because a person stopped making their payments. That said they do not make it easy. This may not be true across the board but my brother is currently looking for a house and has placed offers on three short sales which were consistent with the comps in the area but were denied because the banks didn’t want to take that much of a loss on the houses. I’m sure there are banks out there that are working with people but the biggest thing you have against you right now is that you have been making your payments. In the banks eyes it’s better for them to keep you in the house making your payment on the original loan than to take a hit on a short sale.
As far as it being ethical, I think it is. You did everything right. You didn’t get into a house that was too much for you. You didn’t overstate your income to qualify for a loan you couldn’t afford. You simply purchased a house in an inflated market. It’s not your fault the market has dropped. That said you will still take a hit to your credit for it.
Just my two cents
May 22, 2009 at 4:32 pm
Nick
If you short sell, you’re fired. its in the bylaws.
May 22, 2009 at 4:40 pm
Joy
Good advice Obie. Ditto, ditto.
May 22, 2009 at 10:44 pm
Shannon S.
Greg and I were just going through this whole house buying process so I’ve learned a little bit about the short sale phenomenon. Obie is right that a short sale stays on your credit for 3 years…much less than the 7 years for a foreclosure. Any hit to your credit is not a great idea. Especially if you are doing this to buy another house. You will have a very difficult time finding a loan with that on your credit.
Ethically though, I have to disagree with Obie. The whole point of a short sale is for people who are unable to make their payments to get out of their mortgage with less of a credit hit, and for the bank to recover at least some of their losses. I don’t feel like this applies to you guys right now. You guys are in a house that has lost value and that’s not your fault but it’s also not the banks fault. By getting a mortgage you agreed to pay back a certain amount of money that they loaned you. In a short sale, you are basically trying to cheat the bank out of money that you borrowed. That’s not the right way to borrow money. If you were financially underwater, that’s a different story, but since you guys are providing for yourselves I think a short sale is not the way to go. Wait for the market to bounce back, then sell.
Just my own thoughts on the issue.
May 23, 2009 at 1:16 am
joshbarton21
thanks for chiming in.
honestly, I don’t feel right about short selling.
May 23, 2009 at 4:43 am
Chris Barton
I’ll throw my two cents in as well. I’m not sure if they will let you short sale. Not easily if at all. You haven’t had any “life change” or loss of income when in fact it’s the opposite. I doubt they will let you or at least be lenient at all. As far as ethically. I will have to go with Obie and Shannon. I think the banks have gotten themselves into this mess by their own greed. They lent alot of money to people that should have never been considered for rates that never stood a chance. I think they took some gambles and now they are biting them in the butt. Shame on them. Like Shannon said though, they aren’t responsible for the loss of value to your home. It’s a toughy!