Whether they agree to the short sale or not, from a common sense point of view they should agree the sale. After all, you have presumably offered market value, whereas a repossession auction wouldn’t.
Ahhh, they’re careless borrower during the housing boom-style “Death Vows”
This happened to me. I’d made my offer, she’d accepted, and my lawyer drafted up all the important documents (it was a “for sale by owner” situation). As we scheduled the closing, the owner fessed up that she hadn’t made a payment in 8 months and the bank was foreclosing. It put a wrench in the plans, that’s for sure.
But, the owner wanted (needed) to sell, and the bank knew they’d lose money any other way the deal went through. So they still went through with the sale at the price we’d negotiated, with the bank taking a hit on the final cost. Still, it was probably less of a hit than if the bank needed to find their own buyer.
So, in the end, it was a headache and a pain, but it didn’t delay the closing or affect the final cost in my case. Maybe you’ll get just as lucky?
This may not be true everywhere. I’m not a lawyer, and I don’t know for sure, but my impression from reading a housing bubble blog is that, in some states, anyway, if you surrender the house to the bank, they may not be able to go after you for the difference between market value and the value of your loan.
I’ve been trying to find something concrete on this, but I’ve had no luck thus far.
Maybe Nava is thinking of a balloon loan, with small monthly payments over the life of the loan, followed by a large principal payment at the very end? My company works in auto finance and I also can’t imagine the scenario she’s describing.
Hmm, this sounds like a loan I had about 15 years ago. I think it was called the rule of 6’s and 7’s or something like that. What a ripoff that was.
The terms differ from state to state, and it also matters if your loan is conventional, FHA or VA / military.
Even if you legally owe the bank the difference, sometimes you can work out a settlement.
The kind of loan Nava is referring to is a Rule of 78’s loan: Rule of 78s - Wikipedia
They were a very sneaky getcha that lenders used several years ago. Many an unsuspecting person, assuming they were signing a simple-interest loan, found that they had signed up for a Rule of 78s loan and were totally screwed.
(Hey, I re-upped after 2 years away to post this!)
I used to work for a mortgage company (in collections shudder) and they will foreclose on your property and garnish your wages for the rest of your life and then take whatever is left in your estate after that if you just walk away from property. However, one thing I learned was that if you have a VA loan you can go without ever making a payment and you cant be foreclosed upon. I saw people who hadnt made payments in months and months, in one case over 8 years, and still lived in their homes with no worries. When they die their estates will be used to pay that debt so they will have nothing left to leave family and in addition to that they have to deal with several phone calls a week and letters and inspectors coming by and the harrassment that follows all people who don’t pay their bills. And it gives you the lowest possible credit score you can have. But no foreclosure. I don’t advocate this as an option ever, but if you are getting a loan and you have the option of getting it through the VA you might want to consider it.
Was that legal? I can’t imagine that lenders trying that shit wouldn’t get taken to court.
Nava, I’ve bought several houses in the US and have never, ever heard of the American Style mortgage you mention. The worst thing I ever encountered was a penalty fee for paying off a mortgage early, usually only if payed off within 3 years of the loan and event then it was only a few hundred dollars. We never took loans with prepayment penalties unless the creditor was willing to waive it before closing. The car loan you mention sounds like a balloon payment thing, which isn’t a smart way to finance a vehicle but certainly is never the only option.
As for the OP, a foreclosure will definitely kill your credit. I think they stay on your report for 7 years, but I’m not sure. The first house my husband and I bought was a foreclosure by a small bank; we purchased the house before the actual foreclosure and they lost some money but not as much as the actual court proceedings would have cost them. Banks don’t like to foreclose, they are a PITA and usually cost the banks money. If the owner of the house can find a seller, they can usually negotiate with the bank to waive late fees and missed payments.
Oh, also: If the bank sells the house at auction after the foreclosure and it sells for more than the owner owes on it they have to give the additional money back to the homeowner. (At least in Arkansas.) This doesn’t happen all that often, since by the time the bank foreclosed there are usually several months of payments and late fees due, as well as court costs. But it does happen.
Rumor has it that GMAC financing used to operate something like that though - there were hefty prepayment penalties if you paid the car off early. I can’t provide a cite, my input is based on a conversation with a colleague years ago.
As far as the “US interest” Nava first described - I too have never known a mortgage to operate that way. Again, there may be prepayment penalties (less common these days, except with subprime loans) but every month we pay our mortgage, we pay just the accrued interest since the previous payment. If we sell the house, we just pay interest on the money up through the date we sell the house.
It was at the time. The wiki article says legislation to ban it was introduced in 2004, but it doesn’t say specifically that it passed.
“Sleazy Sam’s Rollin’ Recks” likely MISuses the “rule of 78’s”, as TroubleAgain mentioned.
http://www.obre.state.il.us/CONSUMER/Tips/ABC-INT.HTM
It’s fairly common in the “buy here pay here” type of car dealership for them to claim that you owe them all the interest. Do look for the term “rule of 78’s” on such loans. Note that even if they put that on the loan doc, it doesn’t nessesarily make it legal. Consult your lawyer. IANAL.
There is a lot of good advice in this thread, as always on the SDMB…
Before I post I must place my disclaimer…**IANALREABMFHBITBFF30Y…IW,FSY,ALREAII **
I am not a licensed Real Estate Appraiser but my family has been in the biz for 30 years…I WAS, for seven years, a licensed Real Estate Appraiser in Illinois
As stated earlier, yes, the bank/or lending instution WILL come after you for the difference between the “forclosure sale price” and the* principle* owed…this has recently become a problem because of lending pressure on real estate appraisers…in other words, If the lender (ie mortgage broker, bank or flybynightskippy) pressures an inscrupulous Appraiser to INFLATE the value of the property at purchase (or refinance) the home owner can become upsidedown on the real property. **Please Know it happens **ALL the time…or if the Broker/Banker needs a higher LTV (loan to value) to get a better rate…or if the buyers credit score is mid/lower…or if the loan originater just simply wants to line thier pockets with more gold…they pressure the appraiser to over value the property…
I got out of the appraisal business because of lender pressure…I would NEVER put an owner upside down on a propert, other appraiser would…guess who got the work?
On the flip side (no pun intended for the RE peeps in this thread) I once bought a house from FannieMae that had been on the market for 1 day…I watched it be sold back to the lender (fannie mae) at a sherrifs sale…through dilligent work i found out which real estate agent got the contract from FM…I placed an offer and it was accpeted before the property even had a chance to hit MLS…I got the place for 30K under appraised value AND got 5K back with not closing costs at closing.
ymmv
TSR
golly i wish this vB had spellcheck
VA forclosures do indeed exist. If you get a loan through a major lender and it is a VA loan, the loan is guaranteed by the Veteran’s Administration. So you may not get foreclosed by that lender, but you can certainly be foreclosed upon by the VA.
The VA will then sell these properties off in exactly the same manner that Fannie Mae or Freddie Mac would. As a title person, I have closed transfers on more than a few of these deals.
As for the question the OP proposed, 4th option: deed in lieu of foreclosure.
Some people will inform the bank that they can no longer make their payments, and attempt to negotiate a deal where they can sign the deed to the property over to the bank in exchange for the bank not proceeding with a foreclosure suit.
That’s the technical term in Spanish… “a la francesa” and “a la americana”.
I’ve read other stories that support this.
If the housing market does crash (and with unprecendented inventory levels and the recent report about a year-over-year decline in sale prices, it very well could), this is going to be one aspect of the run-up that is going to get someone in trouble.
Thanks for posting.