Short Sale will not get approved

So, I just posted earlier about our loan modification failure, let's just keep the positive vibe going and explain the recent rash of short-sale failures too.

First, Indym*c Bank (One W*st Bank), B of A, Ch*se and Wells F*rgo have been good to work with, so long as you NEVER refinanced your home and/or took cash out. This really only accounts for about 12% of the US population, but hey who cares, everyone is doing it right?

We have applied for, started and received approvals for 3 short sales so far. We have applied for, started and been denied on 3 short sales as well. Not bad, 50% approval, but let's dig deeper.

1. Purchase money loans in CA have a "one action rule" which means they get they home or they come after you, they cannot do both. Good for about 12% of the popluation, the other 88% percent of us are screwed.

2. For the rest of us who have "cash-out" loans, it means that once the first lender takes the home, the second lender or "cash-out" lender has to come after you personally since the first lender has the collateral (home). So, if you want to short-sell in CA then you must understand that the second lender will need a large incentive to let the home go in short-sale.

3. Not all lenders are participating and better yet, the Government has not forced any lenders to participate and truely HELP people, so there is no guarantee you will even get a loan mod, a short sale or deed in lieu of foreclosure, in the end. So, with all of the good news, what is a home owner to do? Especially one who needs to ditch a $600k boat anchor that is now worth $250k?

First, get an agent familiar with short sales. Second, do not worry about the first lender, they are in the drivers seat and will get cash or a property. It is time to schmooze the ugly girl in the back seat who is commonly referred to as the "second lien holder". They will typically ask for 20% of their lien balance in cash, at the close of escrow. USAA once asked us for 90% of the loan balance and when we said "HELL NO" they ended up foreclosing on the home owner, so be careful. If you have a private lender second, good luck they are tough! The only alternative is to have the first lender contribute cash and/or the agents each contribute cash to the second lender. However, from experience we know that first lenders only contribute $3k and an Agent will typically tell his clients that the home is not available and show them something else. That will not help bring us out of this recession, will it!

So, if you are a home owne who wants to save your credit, short-selling is your best bet. Otherwise, walk away and be prepared to have a huge hit to your credit, receive a large bill from your lender and possibly a bill from Uncle Sam as well. Always check with your CPA first for exceptions, otherwise good luck to you and your Agents it is tough out there for the middle class!