can you get a short-sale approved with no hardshps, and w/o neg. affecting credit

Question

If you want to do a short sale but have never been delinquent, have no trouble making payments, and do NOT want the bank to forgive the difference, but allow you to make arrangements to pay it off (assume as a loan or something)- would it still report negatively on your credit? My only reason for wanting a short sale is that I just don't want to own this home anymore, and am willing to take the loss (i'm upside down on a condo by roughly $26.5k.

The two main things that I'm wondering are- will the bank even allow a short sale in this 'no hardship' condition, and if so- can I do it without any negative impact to my credit whatsoever (credit is good now and we're looking to get a larger place for a growing family). I spent good time and money monitoring and fixing up my credit to get it to the 750 range, I do not want to sacrifice that for the advantages of getting out of this condo, but I really don't want to own this place anymore if possible... (and yes, renting it out is another option, I have looked into it, but at the moment I want to look into all my possible options for just selling the place)

Scott Hubbard · Answer

If you short sale, the lender will verify your have a hardship. You will also have an impact to your credit score becuase most lenders will not consider a short sale unless your behind in your payments. (Although this is not necessarily always the case.) Jon has given you great advice, talk to a REALTOR to understand better where you stand with the numbers. This is because, sellers always believe their property is worth more than other comparables and they nearly always under-estimate the closing costs. Perhaps you can lease the property? What is your P & I versus market rents? Are you in a fixed mortgage?

Jon Holdman · Answer

When you sell you will also have to pay closing costs. The biggest one is the "owners title policy" which is the title insurance to guarantee your policy. There will be numerous minor items. You'll also have to pay taxes for the portion of the year you owned the property, and potentially last years taxes if those have not yet been paid, which may well be the case this time of year. I figure about 2% for sellers closing costs. RE commissions are typically 6%. Even if you FSBO the property, you'll have to pay the buyer's agent's commission, 3%, or else agents will not show your property. Its sometimes possible to get the agents to accept a note for the commission. That is, make you a loan and let you pay them over time. In todays market, seller concessions are common. These would typically include paying buyers's closing costs, repairs or other costs. Lenders limit this to 3-4% of the purchase price. How much of this you have to pay depends on your market and your negotiation. So, best case, about 8%. Worst case, as high as 12%. A short sale means the lender is accepting less than they're owed. If you're willing to make up the difference, the lender doesn't lose anything, so its not a short. The reason I suggested finding another lender is to avoid hinting about what's going on to the current lender. If you call and explain the deal and ask if they would cooperate, they might start getting nervous and start looking more carefully at your account. Nevertheless, they're in the best position to do this deal. I'd interview a few agents about selling your property. Tell them you want a price that will generate a contract in 90 days. Don't do the "price it high and lower it slowly" trick. Get it priced right from the start. Once you have a price, ask the agent, or the title company they're going to end up using, to prepare a prelininary HUD-1 settlement statement. With that in hand, you can go to your lender or someone else and have a better idea of what you will need to borrow.

Jon Holdman · Answer

If you're willing to pay off the shortage, its not a short sale. The bank ends up whole. Can you borrow the $26.5K (plus closing costs, about 8-10% of the sales price)? You could talk the the current lender about a note for the shortage, but I think I'd start somewhere else first.

Me Me · Answer

with regard to the mo. payment vs potential rent question, it's a large difference, almost 50%. my monthly is about 1800, and as rough estimate I could expect to rent it out for between 900-1000 per month. I do believe I could refi to make things a little better, but I haven't found the right loan yet. BECU said they could get me down to around 1200 a month (and when I was using refi calculators online to get a general idea of closing costs they were around 3-4k). It turned out closing costs with them came out to 7500 (lots of junk fees...), and after all was said and done, the monthly ballooned up to over 1700. It contained PMI which I don't pay now, hazard insurance, which I also don't pay now (due to condo master policy), and a few other things, and taxes- which of course I pay, but those were not figured in to the amount they originally said they could get me. Paying 7500 bucks to save less than 100 a month doesn't seem like a good deal to me, especially when I don't want to have this condo for too much longer.... Right now my monthly payment consists of P&I, and taxes go to escrow, and that's IT. If I can get a refi with the same deal that lowers my payment to somewhere in the neighborhood of 1300, (and not much more than the origination fee + prepaids for closing) then I'd consider renting it out as an option. I'm not sure how realistic that is, especially with high LTV though... I may just end up having to stay put, but I really hope I can work out a better situation. In any case, everyone's advice has been very helpful. Was posting in forums to get some better general knowledge to go to a realtor/lender with, and I feel like I've definitely gotten that (this forum was by far the most helpful too :) Thanks all!

Danielle C. · Answer

With your goal of getting into a larger home, it's good that you won't try the Short Sale route, because any Short Sale - even if you are not behind on payments - will negatively affect your credit. Regarding what you hear from others, keep the source in mind. Since you have worked to build your credit, you may want to discuss your options with a credit counselor. Right now, even a 750 score isn't top of the line and one false move can send you back where you came from. I understand that you would need to lower your payments to cover renting the condo. Have you considered perhaps a rent with option? This way you may be able to justify charging an extra so much per month. Also, have you identified what the difference is between your monthly mortgage payment and what the potential for rent is? Perhaps the difference may be small enough to pay out of your own pocket? Good luck! Danielle

Scott Hubbard · Answer

The service agreements, between the investor and the servicer, usually dictate how those relationships are handled. In my experience, since the advent of mortgage securities, you have a better chance of speaking to Santa Claus than you do the investor. It stands to reason, they do not have the staffing to handle these services hence the need for servicer's. The investor would need to be a federally chartered bank in order to service interstate loans. I guess, if the investor holding your note, is headquartered in your state, technically you could deal directly with them. This is why you see a lot of local banks only doing local projects. I have done short sales where the seller was not distressed and I have done them where the buyer is current on their mortgage, however, I have yet to get one done where the seller is both current and not distressed. If you can find an agent who is willing to help you in your cause, I certainly believe it is worth trying. At a minimum, if your willing to pay a portion of the deficiency, say your needing to relocate, GMAC has been good about doing no hardship shorts, however, they generally will not consider it if your not late.

Matt Mathews · Answer

There is no easy way to do a short sale without a Hardship of some sort. However, if you only have the one mortgage (no 2nd etc), you need to find out who the actual Investor is that owns your mortgage. Most if not all major lenders only service the loan and collect payments. Once you know who owns your loan then you can begin to maybe negotiate directly with that Investor first to see if that will accept the loss on your loan. The bottom line is; You still need to make a compelling case as to why other than you just don't want your condo anymore. That reason won't fly!! It's not impossible, but without a real hardship case your chances of negotiating a short sale are pretty slim. My advice is; Choose another strategy to accomplish your goal.

Me Me · Answer

Well it seems like from what the others have said, it won't be a short sale if I'm willing to make arrangements to pay the remaining balance, so I guess that really isn't an issue anymore. It's interesting though, I get different answers in different places. Some say it's becoming common and not difficult to get lenders to agree to a real short sale without hardship, and some are saying it's not possible... I guess maybe it just varies based on lender/area?... My mortgage is serviced by GMAC, and they did tell me who actually owns my mortgage- are you saying that it's better to try to do any negotiating I choose to do with them and not through GMAC?

Me Me · Answer

Thank you both very much for all your help. to Scott- yes, as I said in my original post, I have looked into renting the property out as an option, but I'm leaning against that if possible. My monthly P&I versus what I could get for it is pretty terrible, as rates were higher and my credit was not great when I got this place. I would have to get a really good refi to make it work, which is difficult with my LTV. I would estimate it's around 113%- so higher than 110, and under 125%, but apparently my mortgage is not owned by fannie or freddie, so I don't qualify for the making home affordable program wor whatever that's called. That said, now that I realize I hadn't taken the closing costs into account (and that they were much higher than I thought), it seems both solutions put me in roughly the same boat, at least as far as monthly costs in the near future, and the effect on my ability to purchase a new home. Just looking at the personal loan products I've seen available, I'd estimate that either option will leave me with a payment upwards 8-900$ a month, which drastically reduces my ability to hit my ultimate goal which was to get into a larger home for the growing family. Looks like I will have to keep tossing ideas around on this one, but I may ultimately just be stuck for now...

Me Me · Answer

Thank you for the response. There's a few things I'm a little confused about though. 1) when you sell, doesn't the buyer pay all the closing costs (other than the realtor comission)? Also, when I got this condo my closing costs were about 7k for a 235k condo- that's only about 2%. 8-10% seems high, is my situation not normal? In any case- what you're saying is that if I can pay the difference, either with a personal loan, or asking the lender if I can pay in installments- neither would be considered a short sale? That would be great news. Is there a reason you'd suggest looking for a loan elsewhere before pursuing it through my lender? I'm kind of curious how that would work... The lender would have to agree to the situation first, I have to see what offers come in, and then attempt to get a loan for whatever the difference is? Then if I'm not approved for the loan would there be any problem with backing out of the sale after thigns had gone that far?... Sorry, obviously I'm not all that familiar with this kind of situation, which is why I'm looking for help...