Forget Short Sales. Ask for a Settlement!

By
Real Estate Agent with Keller Williams Premier Realty

I recently had a client who was in to process of being relocated.  He was upside down on his mortgage and had to do a short sale.  I told him it would be wise to contact his lenders to inform them of the situation.  When he did this, the lien holder on his second mortgage asked him if he would prefer to work out a settlement instead.  Not knowing exactly what this meant, he thought why not. 

Long story short, the bank came back and told him they would take 33 cents on the dollar and remove their interest in the home.  so he had to come up with the funds, but it allowed him to sell his home without a short sale and actually put a small amount of money in his pocket when it's all said and done.

I thought this can't be possible.  When does the bank agree to work with someone when they aren't already showing financial distress?  So having a second mortgage of my own, I thought it can't hurt to call.  I contacted my lender and told them I was requesting a 'Settlement' on my mortgage.  After a few brief questions, they sent out a 4 page packet and said they would see what they could do.  Two weeks later, they agreed to take 20 cents on the dollar! 

Imagine my surprise.  I thought I had just hit the lottery.  I had a number of professionals look at the settlement agreement they had sent me.  they all agreed that this was a legitimate proposal and they I would be a fool to pass it by.  So I went ahead and wired the money and now have equity in the home.  I am still waiting to receive my satisfaction letter, but should be receiving this in the next week.

So is there a catch.  Maybe.  First off, I've had people warn that the bank may 1099 me and count it as income.  This may be true, though the 'Debt Forgiveness Act of 2007' passed by Bush explains why this may also be forgiven in a number of situations.  I won't go into too much detail, but if this is a route you or your client takes, make sure to read up on it.  It could be very valuable.  Secondly, you obviously have to have some available funds.  they put a deadline on when they will accept this agreement and it's typically very short.  Lastly, while it may not damage your credit score as long as you are current on your payments, it will create a mark on your credit record that may need explanation down the road.  But that should be pretty simple.  "I asked the bank to take less, they said yes!"

Now this is seemingly new ground that's been broken.  Until 2 months ago, I had never heard of such cooperation.  Since then I've mentioned this to 2 other clients and they received a similar response and are in the process of working something out.  So depending on the situation, you may have the ability to fore go the short sale process, sell your home quickly, and maybe even put a little money in your pocket when it's all said and done. 

close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the tree to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Location:
Minnesota Dakota County Inver Grove Heights
Tags:
brian hurt
hurt homes
real estate
realtor
keller williams
inver grove heights
inver grove heights real estate
short sale

Comments 4 New Comment

Anonymous
Post a Comment
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the sunglasses to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Show All Comments
Rainer
9,318
Dave Slater
Academy Mortgage

Brian, Great info here!  I am sure it will show up on a credit report as "account settled for less than amount owed" and that may throw it into the short sale category as far as getting a new mortgage, there is a 2-3 year waiting period on getting a loan after a short sale now.

January 05, 2010 12:25 PM
Rainmaker
40,759
Brian Hurt
ABR, E-Pro
Keller Williams Premier Realty

Hi Dave.  I spoke with a number of lenders and they said it would not fall into this category as long as there are no late payments.  It will show up on a credit report, but under a different sub-category.  At which point it would be up to the lenders discretion as to whether they would work with it and would need a letter of explanation.  But yes, if there were any late payments, the 2-3 year waiting period woudl apply as far as I understand it. 

January 05, 2010 12:30 PM
Rainer
5,736
Steele Propp
Schatz Real Estate Group

Brian,

May I ask which lender was so cooperative and agreed to a settlement?

January 06, 2010 12:08 PM
Rainmaker
40,759
Brian Hurt
ABR, E-Pro
Keller Williams Premier Realty

You sure can.  The two banks that I've had this experience with were Chase and Citi Bank.  I can't say what other banks are doing.  But I've also dealt with smaller community banks who have been extremely cooperative with both second and first mortgages. 

January 06, 2010 12:23 PM
Anonymous
Post a Comment
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the tshirt to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Show All Comments
Rainmaker
40,759

Brian Hurt

ABR, E-Pro
Ask me a question
*
*
*
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the sunglasses to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Additional Information