negotiating with the bank

[dcsaver]

I am an exhausted landlord and I finally found someone to buy the property I bought as a rental in a economically depressed section of town. The offer ($20K) is less than what I owe (27K) but I'm willing to take it. It's the only offer after 9 months on the market.

I'm current on the note, but I want the bank to accept the 20K as payment in full. How do I get them to agree to that?

[brotatochip]

You don't.  It's a short sale and you owe the remainder to your bank.

[dcsaver]

Do I have to pay the entire remainder at closing or can I continue my monthly note to the bank?

[iamlindoro]

In a short sale situation, you do not owe the difference to the bank in all cases.  In a non-recourse state, the short sale generally ends the seller's commitment to the bank.  In a recourse state, the bank *may* forgive the deficiency, or they may retain the right to go after you in the future for it.  From your username, I presume you are in DC, which is non-recourse.  You should consult with an attorney and a real estate broker to determine the best course of action.

The first step would be to get the bank to agree to a short sale in the first place, which would be your first opportunity to try to get their agreement to forgive any deficiency.  On an amount this small, it's possible, even though it represents a fair percentage of the amount owed.  Short sales take a very long time, and the final amount/seller/contract/etc. are also subject to bank approval, and would be another opportunity to get the bank to sign off on forgiveness of a deficiency.  Your attorney and/or broker will be the ones best equipped to help you get concessions from the bank.

If they do retain the right to get you to pay the deficiency, it is likely that you would at least be able to work out a payment arrangement with them.

[Pancake]

And are you willing to take a long term credit hit for only $7000?

[marty998]

This is how a GFC starts. When 300 million people want the bank to accept $20k instead of $27k.


Pay your debts and do your bit for the financial system. Please :)

[iamlindoro]

This is how a GFC starts. When 300 million people want the bank to accept $20k instead of $27k.


Pay your debts and do your bit for the financial system. Please :)

I just want to clarify... this isn't actually why you think the GFC started, right?  Because it was not at all greedy short-sellers, or a preponderance of short sales in general.

[dcsaver]

Actually, the property is located in Baltimore, MD. I don't care about my credit rating; last time I checked, my lowest score was 810. If the bank takes a hit... well, I'm not sure they'd make a concession on my behalf in the situation was reversed. I just want to put this debt behind me with the least drama.

Thanks for the feedback. This has been very helpful.

[Fishindude]

Work with your bank to get the thing sold for whatever you can get, then take out a note with them for the balance of whatever the sale won't pay for.
$7,000 Isn't much, and you are obligated to pay it.

Why would you think your bank should accept less than what you gave your word that you would pay back?

[zephyr911]

Do I have to pay the entire remainder at closing or can I continue my monthly note to the bank?

If you can't or won't pay the entire balance at closing, then it's a short sale (as discussed already). If you pay the balance it's just a standard closing.
The bank will probably want you to prove that you literally can't make up the difference, if you ask for the former.

[Pancake]

Yes, your credit rating is 810 now, but even if the bank agrees to take 20k instead of 27k then they'll mark that loan not paid as agreed on your credit. This will drop your score significantly probably to the high 500s. With an 810 credit score you could get part of that $7k loss back with cash back or travel hacking credit cards. Might as well utilize the good credit for the $7k rather than trash it.

[dcsaver]

With an 810 credit score you could get part of that $7k loss back with cash back or travel hacking credit cards. Might as well utilize the good credit for the $7k rather than trash it.

Good thought. I figured since I don't plan to buy another house or finance a car it wouldn't matter if my credit rating dropped. Thanks for the feedback.

[zephyr911]

Do you have the money or don't you? Even if you didn't have a vested financial interest in it, wouldn't it still be the right thing to do?

[Drifterrider]

One thing for the seller to keep in mind.  IF the bank agrees to a short sale and "forgives" the shortage, you can bet the IRS will want taxes on the $7,000 "income".  You know the state and county will want their "pound" as well :)

Is the property so worthless that no one would want to live there?  With a loan of $27,000 the monthly payments can't be too much.

[revisednut]

I work directly with distressed notes and mortgages.  Maryland is a deficiency state.  They COULD come after you for the difference, but rarely do.  Given this is a non-owner occupy, there will be likely tax implications (1099) for whatever the bank "nets" on the short sale, and your total payoff on the note.  After realtor costs, and seller closing fees, you're probably looking at more of a $10k-15k deficiency.  Most banks are painful to work a short sale with, and I'd just pay the difference.  This will likely drop your credit score 100-200+ points for a few years.  Remember, there's sometimes added costs for cell carriers/insurance/future employment implications with a low credit score.  Even if you're not looking for new extensions of credit, it is advisable to keep your score up.