What happens in Foreclosure vs. Short sale
Question: Used to read this group a lot a few years ago and know there is the right knowledge here for this.
I own a couple of properties, thanks for the investing tips, and have hit the point where I won’t be able to make my payments 3/1 arm adjusting next month on one that is vacant. Barely been squeaking by and along with the adjustment is a tax error so my escrow will also go up. Whatever, this is my hypothetical if i can’t work things out. Really have few emotional ties to the propoerty and shitty credit is kinda secondary to survival when it gets right down to it.
So a short sale requires that I find a buyer. Listing will take to long and just lowballing the neghborhood won’t have them coming in droves. Not sure this would be a short sale as there is still some equity. But basically if there was a deficiency it’s called a short sale because the bank is forgiving the remainder to be done. (aware of 1099)
Another option is to just stop paying. I am current now on all of my payments. After 3 missed payments they will file and another 90 days will be sold at the courthouse. Lets say the price that comes in is 25k less than I owe. Do i still owe this? Or another process for the bank to sue and get judgement to collect someday? Seems that foreclosure is a better option than bankruptcy.
Filing bankruptcy is an option but no money for a lawyer.
Thanks for lettin me think out loud.
Answer: Yes, that is pretty much how it works. The bank agrees to take the loss to prevent an even bigger loss if it forecloses. It is pretty hard to do in practice. Whit foreclosure, you only lose the one property. With bankruptcy, you may lose them all. You see, if you simply stop making one payment, but make other payments, the courts can go back 90 days (sometimes more) and undo those payments as being “preference payments”. When they undo payments on other properties, then you will quickly be in foreclosure on all of them. I didn’t hear any talk of getting a 2nd job anywhere in the mix. You always have the option of delivering some pizzas and doing a paper route or two, not to mention getting a 2nd shift full time job or doing consulting on the side. It is all a matter of how badly you want to get out of this problem, and how badly you want to make it in life. To be honest, you could have run some numbers a few months ago and seen this coming 6 months ago. If you had done that, you would have had a lot more options. Doing cash flow predictions and analysis of future business is part of running a good business. Waiting until the last minute and sticking your head in the ground is kind of like being a ostrich.
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