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Avoiding Foreclosure via Short Sale and/or For Sale by Owner

A quick update on my California properties.

Burdett

I hired my realtor to do the short sale on Burdett property because she has been doing such a great job with Larchmont.

If you remember, I already have a verbal approval from the lender to short sale at 248. An investor who I was working with directly negotiated that with the bank but then backed out because the bank wasn’t willing to go down to 200 like he wanted. After attempting to wholesale the property he ended up just turning it back to me.

Since then I tried to do some For Sale By Owner No Banks Needed type of marketing with signs on the property. That actually is working to generate some calls.

No Banks Needed I probably have had 5-10 people inquire about it. However, most people don’t have the cash to catchup my payments (17-20K) or they can’t afford to take over my payment of $2500/mo. I am still working with a couple of potential buyers so maybe this will still pan out.

The problem is… qualifying, taking calls and showing the home takes a lot of time/effort. Since I am not making any money on the wrap / lease option, there is no financial incentive for me. That’s why it’s hard to justify sinking a lot of time or money into it. I need to start focusing more on moving forward instead of trying to save a bunch of sinking ships.

Outsourcing the sale of this house and moving it off my plate is already feeling better. I’ll probably continue doing some more For Sale By Owner marketing at the same time just-in-case. If I find a buyer myself I will build-in a $500-1000 fee into the down-payment to compensate the realtor for her hard work and expenses.

It’s great to have her on my team. As some people will tell you, there are not too many real estate agents who are willing to work this hard.

Larchmont

Our original buyers (who where going to offer 220) backed out. They already bought another house. That’s the problem with short sales. It takes a very long time for banks to get back to you and you can lose (sp!) buyers. However, now the listing is flagged as “short sale approved” and she said there is more activity.

50K Promissory Note Countrywide actually gave us until Jan 19th to close and reserved the right to charge the seller (me) a per-diem rate after that. And of course, the other stipulation was the $50,000 promissory note I signed to make up some of the money the lender is losing on a short sale.

If the short sale doesn’t work, I hope the note is contingent on the short sale and not just a trick Countrywide pulled on me to where even after they foreclose I will still owe it. I guess I should have checked into that before signing.

My bankruptcy attorney actually advised me to rescind that note immediately in order to prevent issues if I choose to go for Chapter 7 bankruptcy – because it’s new debt. For now I am choosing to stay away from the bankruptcy route though, so I am staying put.

Almost forgot about Muncy… only 6 days left?

Very Honest For Sale By Owner Sign Man, I’ve been really neglecting this property lately because of the distance and because I have been slow in opening my usual sea of mail the foreclosure auction on January 24th caught me by surprise.

Since the property is an 1.5 hour drive away ($$), I haven’t been doing very much with it aside from my original Very Honest For Sale By Owner Sign (which I later removed) and listing with a flat-fee broker at $350,000 several months ago (not ONE call!).

I have also been doing some light For Sale By Owner No Banks type of marketing with catchy flyers (updated), newspaper ads, and craigslist ads (with tracking) No Banks Owner Finance Ad to attract credit-challenged buyers who have money but no credit and are willing to catch-up my loan and take over payments via a lease option or a wrap-around contract. That did generate some calls and I had a couple of buyers who loved the house and could afford the payments but were short on the down-payment.

Last minute Short Sale…

When I found out about the foreclosure auction (through one of the comments) I kind of just wanted to give up on it and let it foreclose. I was even planning to go down to the auction and video tape it and post it her for educational value.

But then my Sacrament Realtor referred me to a Realtor in Modesto who is experienced with short sales. She urged me to not give up on the property without a fight.

Front of the house I contact Larry, the Modesto short sale realtor, and find out he actually has a buyer who is looking for a home like this. I gave them the lockbox code and the buyer viewed the property right away.

Without wasting any time they sent me a purchase contract for $270,000 and a checklist of documents. I spend several hours yesterday putting together the short sale packet, updating my financial statement and my clean hardship letter.

Now the short sale packet is in Larry’s hands and I’m just going to wait and see what happens next…

Why bother with a Short Sale?

From what I understand, in California, I can just let the houses go to foreclose and the lender has no recourse against me. That means aside from taking my property they can’t sue me and get a deficiency judgment to cover their losses – as long as it’s a purchase money loan (never refinanced) and as as long as the lender is doing the more common and fast trustee sale (auction) versus the rare judicial foreclosure. So why bother with a short sale?

Plus if I do a short sale won’t the lender send me you a 1099 and I will be responsible to pay taxes on forgiven debt?

My Reasons to go Short and Avoid Foreclosure:

1) Instead of just throwing in the towel and letting all those houses go to foreclosure I am trying to do everything I can to pay back as much of the money back to my lenders as possible. I feel that’s the responsible thing to do, especially since I used liar loans.

2) After talking to my CPA last week and giving him some rough numbers from 2006, he doesn’t think I made enough income last year to worry about paying taxes on forgiven debt. So I should be OK with a 1099 if the lender even sends one to me – I hear sometimes they don’t.

Myfico Equifax Score 3) A short sale looks much better on my credit report than foreclosure, I am told. This is probably the main reason people who are facing foreclosure on an over-leveraged house are advised to do short sales. (The next best option is a Deed-in-Lieu of Foreclosure according to mortgage broker Nigel Swaby and other people I’ve talked to).

The only thing is… what if I can’t save one of the homes and I will get a foreclosure on my record. Is one foreclosure just as bad as 4 foreclosures or is it worth the fight to minimize the number of foreclosures on my credit report?

I asked a couple of mortgage people and I received a mixed response… Feedback?

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