Buying new home then going for short sale, problems?

**MrMike** · 04-29-2010, 03:47 PM

Like most people we're underwater in our house. We bought our home 4 years ago at the peak of the market. We actually put 20% down (about $100k) and invested probably $15k-$20K right after moving in. Even after all that we owe about $80K more then the house is worth. Makes me sick to think about it...

The problem now is we're in a 5/1 ARM and our payment will be adjusting up in less then 8 months. Of course we have no way to lock into a 30 yr fixed with the lender now. We've called then many many times over the last couple of years to try and do something with no success (I guess our problem is we keep paying!).

So with no other options to get out from under it we're fortunate enough to be able to qualify for a new mortgage based on our pretty high credit rating and my income. We are qualifying based on making both mortgage payments, we're not saying we're going to rent out the old property and use it as income so there's no mortgage fraud going on. We've got an accepted offer right now for a foreclosure and are just starting our due diligence (home inspections, etc). We should close in less then 60 days.

Once we get into the new house our intention is to sell our current property and we'll have to short sale it obviously. It's just purchase money for the mortgage so I know we can't get taxed on the forgiven mortgage debt or be pursued for the deficiency by the lender since we're in CA.

My question is besides the negative effect this will have on our credit for stopping payment on our old mortgage are there any other ramifications we need top be worried about?

I just want to say too that this really really sucks for us. This is a beautiful home that we want to stay in. We've invested a lot of money and time into this house. If we were in a 30 yr fixed mortgage we wouldn't be going anywhere. This is a last resort, we have no other options and the lender has been unwilling to work with us despite our continuous efforts over the last couple years.

Thanks!

**mWoods** · 05-01-2010, 10:46 AM

Reading your post is basically reading the conversation I had with someone this week. Being upside down in the mortgage is awful. Are you positive your ARM is going to go up? They can go down as well.

**Chrisopher Moltisanti** · 05-01-2010, 01:31 PM

Since the banks are in control, you may or may not be able to short sale it even if it looks "obvious".

You have to be in financial dire straits. The bank may give you a packet. You fill it all out. They determine after they receive the packet and it sits on someone's desk for.....10-21 days, if you're worthy and they'll accept your house back being it's worth a large bag of fries now.

If your income is steady and you earn a lot, the bank will laugh at your request.

Since you said your credit score is pretty good and your income is high, you have a better chance of getting a lap dance in Mecca than getting the lender to say "Yeah, okay. We'll take it off your hands".

CM

**MrMike** · 05-03-2010, 10:09 AM

Mwoods - I can't say 100% that our interest rate and payment will go up but principal will be added to the payment. Our biggest problem is our payment would adjust every year until we get enough equity to refinance. Who knows how long that could take and we would be taking a huge gamble that interest rates wouldn't go up for that period (5-10 years likely). Depending on interest rates over the period of the ARM our payment could increase more then 50% from what it is now.

Basically I sat there with an excel spreadsheet and calculated out that we could stay in our house and being ridiculously generous saying that in 5 years home prices will go up 25% (haha), that along with paying down some of the principal would be enough to get us 'even'. At that point we would have $0.00 in equity in our house after another $175,000 in payments (IF our payments don't go up by much). Again, I think this scenario is being far too optimistic; I do not see property values going up 25% over 5 years, I think it will take much longer. Which means that it will cost us a great deal more just to get to $0 equity.

Investing in a new property we will already have close to $10k in equity due to our down payment on day 1. Using the same assumptions about increasing property value we will have $70K or more in equity at the end of the same 5 year period but we'll be paying 25%-35% less / month.

I know the lender won't work with anyone without a hardship or anyone that continues to make payments. So we're planning to stop paying the mortgage after we get into the new home and the hope is the lender will come to the table to accept a short sale instead of going down the road of foreclosure or deed in lieu. If they won't do a short sale we will simply have to let the property foreclose unless we could do a deed in lieu as a last resort.

**Partizannka** · 05-05-2010, 01:58 AM

Originally Posted by mWoods

Reading your post is basically reading the conversation I had with someone this week. Being upside down in the mortgage is awful. Are you positive your ARM is going to go up? They can go down as well.

you can never know now, can you?