Was This a Short Sale or Not?

We have been transfered with a company to a new state from Georgia  The company provides a buyout once you can not sell house. Our buyout is for 391,000 and owe 455,000.  We have a mortgage and equity line both with Wells Fargo. 

They have sent us the short sale package explaining we will be obligate to pay the shortfall after net sales on a no interest note.  How does this affect our credit and will it affect buying a new house in 4 months? 

We have good credit now, in the mid 700’s.  Also, do lenders negotiate the total amount to be paid back after reviewing the financial statement we submit?  And would we be better off have a short sales specialist to handle this for us since we are not familiar with all procedure details?

Candee

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Hi Candee,

On the surface it sounds like you have been offered a solution that will keep your credit rating intact. 

I’ll assume you are making on-time payments on your mortgages and they are offering you an unsecured note for the full difference of the mortgage balance less buyout. 

If the above assumptions are true, then in my opinion, the lender is offering a hybrid refinance and you would be in a position to negotiate the credit reporting.  In other words, the lender didn’t take a loss at all; they allowed the property to be sold for less than the balance and the remaining amount was refinanced into a new unsecured note.  You could insist that they provide a written statement indicating the credit reporting would be listed to reflect paid/closed/$0 balance as opposed to settled for lesser than amount.  In that scenario, in as much as short sales are concerned, you could buy a home again in four months.

On the other hand, if your objective is to short the lender by signing for less than the deficiency, then you will have completed a short sale and your credit report will reflect that and you would have to wait two-years to buy again.

Two final comments are that (1) those unsecured notes are negotiable as to the terms – so stretch the zero interest out to 20 years, and (2) debt settlement and credit repair are mutually exclusive in their ultimate objectives – meaning do you want to pay less or have stellar credit.

Thanks for the questions and hope this helps.

Paul