My husband and I filed chapter 7, 2 years ago. We did not reaffirm our mortgage. We have decided to move from the city to the suburbs. I spoke to a short sale lawyer, but am not convinced it is the right thing to do. We would eventually like to buy another house and understand that we have to wait 3 years after the deed is no longer in our name to apply for another loan. I understand we have to be approved before a short sale can happen which means writing a hardship letter. What is the reason for a hardship letter is we are no longer responsible for the loan? Thank you
A short sale is usually advisable as a new mortgage can be obtained quicker and there are often seller incentives. My firm has had client file for chapter 7, short sell their home, and purchase a new home 2 years later.
The hardship letter would contain the reason you'd fallen behind on your mortgage and are unable to pay, not that you are no longer responsible for the loan.
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You can walk away from the home that you are currently in and not owe your mortgage company a dime. You don't have to stress over whether you can complete the short sale. If you can, great, you might be able to purchase another home a little sooner. Hardship letters explain why you fell behind with your mortgage payments. These letters are standard procedure for trying to work out a short sale.
Post Discharge you would want the property out of your name but why not just move (when you do) and then offer them the deed in lieu of foreclosure. Why go through the stress and hassle of a short sale that you do not need and does not benefit you?
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Michael and Kevin are exactly right. There is absolutely NO REASON for your to go through the hassle of a short sale. From a money perspective the best thing you can do is to live in the house without making mortgage payments and move out when the bank is given an Order for Possession. The minimum, provided by law, amount of time they have to give you is 8 1/2 months, often taking up to two years.
If you filed Chapter 7 in 2012 then there is no obligation for you to pay the bank a dime, or arrange for them to receive a penny by selling the home. I'm not certain I've ever heard the rule that you have to wait 3 years and am unsure who gave you that idea.
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I disagree with the lawyers who are saying that the short sale will not help you. Since you have already decided to move out, the short sale makes sense. Once you close, you are no longer responsible for the maintenance of the property and you don't have to worry about insuring it. Foreclosure cases generally will take much longer. The shortest path toward purchasing another property is the FHA mortgage. The waiting period for FHA is 3 years from the short sale date or the date of the judicial deed. You should have considerably less time to wait with a short sale, especially if you hire a capable broker and attorney. You should be guided through the hardship letter and the rest of the application process by your short sale broker or attorney. Be careful with FHA mortgages, however, They carry much higher fees than conventional loans. You have to pay two different types of Private Mortgage Insurance. This needs to be thoroughly explained before you take out an FHA loan.
As you see, the answers are mixed. I feel that it will be a personal evaluation for you. It is possible that you would gain slightly from a short sale, versus letting the house go through foreclosure or giving a deed in lieu of foreclosure, but the stress and headaches may not be worth it, even if working with a solid attorney and agent. On the other hand, continuing in the house without a payment may give you the opportunity to put money aside for a larger down payment in the future, which could work to your advantage in qualifying and in setting yourself up for the best financial future. Your questions may be best evaluated in a meeting with a well-qualified loan officer, rather than an attorney.
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Having practiced extensively in this area for 5 years, it is almost always better to go through the short sale. I say this having performed bankruptcies, foreclosures, deed in lieu of foreclosure, consent foreclosures, loan modifications and other loan workouts for my clients. In my opinion, Peter is correct. Although all of the options affect your credit, letting your house go is the absolute worst idea for sure for multiple reasons. First, a repossession like a foreclosure is frowned upon by lenders and it will take you longer to get a loan in the future. Second, despite the negative publicity with short sales, they are finalized almost 98 percent of the time. There is no extra stress if you have the right attorney. It will be fairly easy because there is no issue with you owing a deficiency. They just take a little longer. Sometimes less time then going through the foreclosure process. Finally, future lenders will view it as a sale when applying for a new loan. The hardship letter and other documents are standard and required by lenders. It is just part of the process and should be easy to right. Based on the divergent opinions on this site, it is best to physically speak to or meet at least 4 attorneys before you make a decision. Good luck with your search.
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