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Originally Posted by McLovin
A short sale would be ok, but she seems to not understand what a short sale is. Because she says it will solve her problems "except for the bank." By definition, a short sale solves the bank problem. B/c in a short sale, the bank agrees to take less than it is owed. She can't "short sell" without the bank's consent, b/c without the bank's consent, the bank won't release their mortgage.
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True. Although, just because a bank authorizes the sale/release, doesn't mean they won't come after the seller for a deficiency. The banks do still come after people for deficiencies and can try to sneak in a promissory note as part of the terms/conditions of the final "lender agreement notice". Best to check the owner's State anti-deficiency laws, and carefully read the final short sale approval docs if going that route. Insist that it is a full release with no future pursuing of deficiency judgments (non-recourse clause).
That said, a short-sale is still the better option over a foreclosure in most cases. Depending on her situation, you might have her also look into the deed-in-lieu option.
Quote:
Originally Posted by McLovin
If she hasn't paid for a year, and the property was already underwater then, it is probably hopelessly underwater by now. By the time you add in the delinquent payments, penalties, interest, etc.
If she wants to "walk away" she can just do nothing. Keep collecting the rents. Legally, nothing is going to happen to her, that hasn't already happened (screwed credit, etc.).
Eventually, the bank will get around to foreclosing. She says after they start foreclosure, she'll tell the tenants to start paying the bank, but that makes no sense. If she's not telling the tenants that now, why tell them after foreclosure starts? The start of foreclosure doesn't change anything as far as the rents.
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Exactly. The chances of the bank actually writing-down the principal (it doesn't happen) and the owner agreeing/catching up are probably nil. Any sort of "loan modification" is usually a waste of time/effort, and just prolongs the inevitable.
Regarding tenant notification: It's probably a good idea to inform the tenants as soon as she gets the official foreclosure notice from the bank. It could be legally required (check her State's Landlord-Tenant Act) and if nothing else it's a good CYA measure. Also, current rental/lease agreements will remain in place and enforceable as mentioned, but
ONLY for legitimate, bona-fide leases/tenants. Her relative(s) will probably have to vacate (within 30 days typically). Probably a moot point if everyone is on a month-to-month agreement anyhow. Just make sure they know that upon possession, the bank will not be "renewing" anyone's lease after their 30 days is up.
Quote:
Originally Posted by McLovin
At the sale, the bank will "credit bid" the amount of the debt. Because the property is underwater, the credit bid by definition will be more than the property is worth, so there won't be any other bidders. The property will therefore be purchased by the bank at the foreclosure sale.
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True in most cases. I would expect it to default back to the lender. However, banks have been known to issue "drop bids" on certain properties that are well below the typical credit-bid amounts. If it
is picked up by a third-party, the rights of the tenants can change a bit (usually in favor of the tenant, especially if the new owner doesn't intent to occupy the residence). Again, check the LTA for that State.
Quote:
Originally Posted by McLovin
From there, there's an issue. Since she is living at the property, and it's not more than 5 units, there's a chance that the loan is classified as a "residential" loan and may be non-recourse. That means they can't come after he personally for a deficiency. This is probably the most impt legal issue she needs to find out! i.e., is her loan recourse or nonrecourse.
If the loan is non-recourse, after the foreclosure sale, the matter will be over.
If it is a recourse loan (and it very well may be, she needs to check her loan docs), then technically she will be responsible for the deficiency. Whether the bank actually goes after her for it is hard to predict. A lot depends on the financials she gave them when she took out the loan. If they show a lot of assets, esp. real estate with equity, they may go after her.
If she has other assets, she could start doing some, umm, "asset planning" in advance of all of this.
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This!
I am guessing it is still a "residential" mortgage, but she definitely needs to confirm. Also, even if it is a non-recourse loan, there could still be concerns if any of the debt is not considered "purchase money" (cash-out re-fi's, seconds, etc.).