I received a question from an Active Rain reader. Here is most of my answer.
Yes you were brief, but you've asked some very big questions.
Regarding short sales, banks (all lenders) accept short sales when it is in the BANK'S best interest! If the short sale benafits the home owner that's good, but not the reason the bank took it.
That said, you can always ask. When to ask is another matter. I don't approve of asking in the abstract! I suggest you find a buyer, get an acceptable an offer contingent on the bank accepting a short sale and present that to the bank. If you ask "will you accept a short sale?" before you have an offer and the bank says no, it's very hard to go back to them when you do have an offer.
When you do ask, with or with out an offer, the bank is going to want all your financial information, and a current appraisal on the property. The bank is not going to give you their money to save yours!
You say that you owe more on both homes [ they bough a new home before selling their home, three years ago.] than they are worth, so do a lot of others.
Negative equity alone is not a reason for the bank to accept a short sale. Many people willingly even anxiously put themselves in that position. (Have you ever financed a car?)
We need to discuss your houses separably, there is a big difference between your home and your rental. (You might want to read: Bunk, BUnk, BUNk, BUNK )
You will still need to live some where! The cost of your current home with it's negative equity has to be compared to the on going cost of alternative housing. If you sell your home what will a it cost to rent? It's rare but not impossible that you can rent a comparable property for less than your current payment. If you'd consider cutting back your life style why not move back into your first home?
Your rental is a different matter altogether. It's hard to give advice with the little information you've given me. It appears that you let it set vacant for the first two years after you moved to the new house, that would drain anyone's savings. Now the lease is about to expire and you sound worried about finding a new tenant, is it the hassle or is it the rental market? What do you owe on the rental? What is it worth? What is the payment? What does the the house rent for? Did you spent your saving subsidizing the rental or because you waited two years to rent the house?
How is your other credit?
There are alternatives to a short sale.
If the bank turns down a short sale you could ask for a release of collateral, where the bank lets you sale the property for the market value and releases the mortgage, but you are still libel for the remaining balance. Then there is a substitution of collateral, again the bank lets you sell but you secure the remaining balance with a mortgage against some other property you own, this might even be valuable personal property. In both cases you would have to negociate a payment that you could live with, and convince the bank that it is in their best interest!
Or you could ask the bank to allow a buyer to assume of your loan, there are two types. A formal assumption would have you released from liability for the loan, an informal assumption just lets the buyer make the payments. Again, if they say no you could sell "subject to" the existing loan, this violates the "due on sale" clause of your mortgage, but not the law, just don't hide it!
Why would someone buy a house with negative equity? Because with little or no money out of pocket they would consider the negative a cost of opportunity. Which you need to consider.
If these aren't big enough questions, you ask: "should we hire a REALTOR®?" The ease answer is, not the one who got you into this and didn't sell the house three years ago! Another easy answer is yes you need expert help. The big question is should you list the property? My advice is NO! You can't afford to add 6 to 8% of the value of the property, to your negative equity. You need a broker that will work for you by the hour, like an attorney, because you do need good advice. Be careful just being licensed doesn't mean anyone is capable of solving your problem. Be prepared to pay for good advice and you may need to pay a selling REALTOR® if they produce a buyer.
Bill
William J Archambault Jr
The Real Estate Investment Institute
