|Short Sale Sets Back Borrower||| Print ||
|Thursday, 06 December 2012 14:23|
By Phil Hunt
Special to the Times
Q: I want to refinance my property and, after applying for the refi, the lender sent me a copy of my credit report. Back about five years ago, I had invested in a rental income property with another guy; we both were on the loan. The property had to be sold as a short sale two years ago and the credit ding is on my credit report. Since I never lived there, is there anything the lender can do to me for having done a short sale? I guess I will not be able to do a refi since the credit ding is on my record. How long will it be before the ding will go away? Can you help me figure this out?
A: You are right, you will most likely not be able to refinance your house for probably another three years, maybe longer. I am not an attorney and I cannot give legal advice, but I know about these problems and I will share what I know. Check with your lender for their input into your situation.
For what it is worth, here is what I have found out about your situation from a real estate broker’s prospective:
The lender that had the loan when you did your short sale will not be able to come back and demand their loss unless they did a judicial foreclosure, which they did not do because you did a short sale. They may have had you sign a note to them at the close of the short sale wherein you agreed to pay them their loss; but, if that did not happen, you should be clear.
Had you refinanced that property, the answer would be different.
Had there been a second loan on the property, the answer would again be different. Second lenders are not wiped-out by a short sale unless they agreed in writing to the short sale.
As for doing a refi on your present home now, I have a suggestion: Try your existing lender. They have the ability to do a HARPII loan in which there are loopholes for this kind of bad credit.
Don’t feel too badly, you are in good company. Thousands of owners find themselves in similar credit-ding situations, and getting a refi is extremely difficult if not impossible, except through your present lender.
I am often asked: “How did we get into this mess? Who is responsible?” The answer is: our federal government.
Back in the Carter administration, they passed a bill which set the stage for the financing fiasco that started in full swing during the Clinton administration, wherein it was required that the lenders must loan to almost anyone who applied for a loan to buy a home or suffer the consequences of government sanctions for not having done so. And, the results of that program set the stage for the run-up in home prices — too many buyers with too much money and a limited supply of properties.
But then came the results of unexpected consequences — the market collapsed from having gone too high and became unsustainable.
We are now reaping the fruits of that good-intentioned but misguided program of allowing anyone, qualified or not, to buy a home with up to 100-percent financing or greater; they were called sub-standard loans.
We all are paying the price for the fiasco set in motion by our Fed. I hope this helps.
Phil Hunt is a real estate broker in Castro Valley. Fax questions to 583-5480.