Rent property or accept offer for SHORT SALE

[2cents]

I need an advice.

My property is located in Riverside county.

There is an offer for $250K, which I accepted. Buyer did an appraisal last week, came back with an appraisal of $215K.

My loan is $238K. My realtor said this is a short sale. I don’t have any money to cover the difference at closing. What are my options?

1. Go for the short sale. How do I cover the difference at closing? Will this affect my credit?

2. Withdraw from the offer agreement. Rent out the property until the market recovers? This will run me a negative of at least $650/mo.

I appreciate your input.

[SD Realtor]

Your options are as you stated. In a short sale you will need to work with your lender. There are some imprtant steps that your lender will require you to take. You may or may not be liable for the difference, it all depends on what your lender will agree to. You will most likely carry a tax liability for the difference in what you owe verses what the lender forgives. You will need to deal with the IRS in this case. Yes this event will have a negative impact on your credit. Short sales are not “short” in terms of time. They generally take longer then regular transactions so if you are going to do it, get moving on it. Your lender may not agree on the 215k making it moot but if you have an appraisal that states 215k then it will help your argument with the lender.

You can default on the agreement and become a landlord. You stated that you will have a shortfall of 650 a month. Can you afford that?

Sounds like a choice of bad or worse. I think most people here see the inland empire as one of the areas that will get hit harder as the decline continues over the next few years.

SD Realtor

[temeculaguy]

Where is your property located and what is it? Riverside is a big county and the market varies based on where it is within the county. Some of the areas in the county haven’t seen much of a drop yet so you may have to wait years for it to recover, some towns have just been hit with tons of notices of default so they will drop further in six months. Some markets have very low vacancy rates while others are flush with rentals so post some details and it will make it easier to give advice.

[LookoutBelow]

Either pony up the dinero to short sale the bitch (smartest move) or bend over and kiss your credit goodbye (bad move)….or swallow 650 per mo negative for the rest of your adult years (the worst move) …..The light you thought you saw at the end of the tunnel 3 years ago was the proverbial train……Believe us now ?…..you'll see, there really is a BOGEYMAN hiding under your bed….its a jungle out there, the tab for your supposed "free lunch" just came due 

Good luck and good night

[kicksavedave]

Option D?

Cancel the current contract, ask for a new one at $238K, and tell the buyer to find a lender will get it appraised for that number. The buyer may still have plenty of options for financing, including THEM ponying up the dinero to cover the difference between appraisal($212) and your loan($238), or a net of $26K. The buyer was obviously willing to buy for $250, now they just have to figure out who will help them do it at $238k…

If your options are

A Bad
B Worse
C Dreadful

I’d work very hard to find option D.

[Critter]

“tell the buyer to find a lender will get it appraised for that number…”

Smells like mortgage or appraisal fraud.

[CAwireman]

2cents –

I speak from direct experience from the last downturn. Basic options I can see:

1) Sell the house for what you can. Take out a loan on the remainder and pay it off. This will result in your credit remianing at its current level. Had I to do it all over again (and if I decided not to be a landlord), I would take this option because it results in being able to freely manueuver when the next RE boom begins. A negative mark on your credit history could tie your hands if the lending practices tighten up (which is likely).

2) If you’re willing to accept a moderate or heavy hit to your credit (as SDR and others already described, so I won’t) then, consider these options:
a) Short sale
b) Foreclosure – just walk away and mail in the keys to your property. Minimum 7-year credit hit, potentially even longer.

3) Landlord – this is the long plan and eventually SHOULD pay off. The term for it to become a profitible resale or a desireable assett? Anyone’s guess. In my situation, had I held on to my property, rented it, and sold during the boom, I could have made a respectable profit. Being a landlord can be a real pain and not everyone is a good fit for that role. Tough choice.

In summary, I’d pick either 1 or 3 if I were you. The short sale is an attractive choice, but will have credit implications later and tax implications sooner. And, the lender may not allow it (mine didn’t, though I tried like heck!).

Good luck and please let us know the details of what you decide and how it transpires. Thanks for sharing your situation.

[hipmatt]

Accepting the short sale will probably be a way better idea.

[kicksavedave]

“tell the buyer to find a lender will get it appraised for that number…”

Smells like mortgage or appraisal fraud.

Only if an appriaser actually gives an appraisal higher than what he/she actually believes. We’re not talking about offering bribes, or asking anyone to lie. We’re talking about shopping around for someone to give a different number than the first one. Even if they won’t give you $238, if they give you $230 or $225, thats less cash that either of you have to come up with to bridge the gap.

[Critter]

And if they give you $205K? Not picking on you, but the RE industry is going to be under increased scrutiny in the next few years. There has already been rumblings about lawsuits regarding appraisers who are nudged to “hit a certain number.”

I agree with shopping around, but it could also go the other way, or if “the number” is hit, be found out to be suspect from a legal standpoint. And why would any buyer ask for a higher appraisal – unless there were some financial shenanigans going on?

[Looking4PQhome]

Critter –
Is there anything that’s ever NOT considered fraud to you???
That’s all we ever hear from you.
Get over it already!!!

[(former)FormerSanDiegan]

So, you have a deal for 250K. If the appraisal came in low the buyer can cover the difference (not likely since it’s about 15% of the original price), or cut a new deal, or simply cancel the deal (assuming the proper contingencies were in place).

Does the $215K make sense to you based on the current market in your area ? Or is the buyer using a buddy appraisal to try to get a better deal on the property ?

… just a thought.

If the 215K is reasonable, then I would consider making an offer to split the difference at 225 or so, depending on the buyers’ ability to make a down payment.

[Diego Don]

I have much less knowlage than a lot of people on this forum in real estate bargining. But lets talk horse trading. If you are at a split the difference point, you are about eye to eye. On equall footing. The buyer wants what you have, and you want a fair, price for it. So it is a good deal for both if you get less than you wanted, and the buyer pays more than he wanted.
You will both feel better for it. As far is if it was a better deal for one or the other horse traders? Only a crystal ball will tell.
Seems at Piggington’s the crystal ball is bearish. And the puppy chow mass media is bullish. Time will tell.

[Bugs]

In a sale situation and considering the price range the difference between $215 and $250 is sizable.

It’s as if the buyer had no clue when they made their offer. Either that or maybe the appraiser really is being overly limited in their analysis. The first question I’d ask is if the appraiser actually went inside the home, because there are some lenders right now who are using exterior-only appraisals, even for sales transactions. Some lenders are even using automated valuations (like Zillow) for certain borrowers and certain properties.

For an appraiser, being too low is only slightly better than being too high. Considering what’s at stake here, it wouldn’t hurt to get a second opinion.

[Author]

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