Lisa H asked:


We are thinking of looking into doing a short sale. I know we need to talk to the mortgage company about this but just wondering, how does it work with interst only loans? Our 1st mortgage is at $284,000 and a HELOC at $55,000. Zillow shows the house valued at about $339,000. We are currently making monthly payments but we are currently about a month & a half behind (on the 1st mortgage) and working with the mortgage company to get caught up but our payments are too high and will continue to be a struggle so we would like to get out of the house and possibly get into a rental & possibly buy again in a few years.
Thanks for all your input. My next question is, who do I talk to first about this? Do I tell my mortgage company we are thinking of doing this or do I talk to a realtor first?
It is the same lender for both loans. Thanks!!
You all have been very, very helpful. I feel like I’m really getting a good grasp of this stuff. My next question is, how do I go about finding a realtor who really knows about short sales? Do I just call a realtor and ask? Or is there a way I can search for them in my area? I live in Illinois.

Irwin

6 Responses to “How does a short sale work with an interest only loan?”

1. Landlord on March 10th, 2010 3:26 pm

   Darryl

   You have to convince both banks to let you sell the house for under 380,000, about what you need to break even, if the buyers pay for everything. Obviously you owe more then your house is worth, so you are going to need to ask them to eat 40-50k if you sell at what zillow sais. The real number is more like a 100k though, you are going to have to compete, and zillow is not up to date.

2. Gregg on March 13th, 2010 6:24 am

   Belva

   What state? If it’s california, contact me!

3. Etta P on March 15th, 2010 4:12 am

   Zana

   A short sale occurs when a property is sold and the lender agrees to accept a discounted payoff, meaning the lender will release the lien that is secured to the property upon receipt of less money than is actually owed. This is also the procedure for interest only loans.
   Examples: If the unpaid balance of a loan is, say, $100,000 and a property sells for $90,000, under a short sale the lender might accept $90,000 as payment in full.
   Below is a website that has a bunch of good information.
   Hope it helps!

4. goz1111 on March 16th, 2010 11:02 pm

   Bennie

   you may be able to negotiate with the second note, since if you do go into foreclosure their only real hope is to buy the first note to protect their interest in the land

   but first you need a realistic sells number to even get an idea if the second will sign off on a deal

5. kthor101 on March 17th, 2010 5:31 pm

   Waldo

   talk to both lenders and then to a realtor for accurate comps of home ..

6. satarnag on March 20th, 2010 6:51 pm

   Denny

   Hi, I am a licensed real estate broker in Southern California and I help people in your shoes on a daily basis.

   The type of loan does not matter when it comes to a short sale. This is how it basically works:
   1. Find out the true value of your home (not from Zillow, but from a professional licensed real estate agent or appraiser).
   2. You list the home and find a buyer. Try to find an agent that is experienced and knowledgeable in short sales. A rookie will miss this up.
   3. If you accept the offer, then your agent (or your agent’s escrow/title company) will provide a estimated HUD-1. The HUD-1 is basically an expense report and payoff report showing what the expenses are (real estate commissions, taxes, HOAs, etc.) and how much the 1st lender will get and what the second lender will get.
   4. Now you negotiate with your lender for the short sale. In your case, the second will be the key to make it work. I’m sure that as long as they get 10% and the BPO matches the purchase offer within 70%, they will approve of the short sale.

   Good luck and I wish you the best of luck.

   Regards