Short Sale?

[draygnmage]

Ohio

My ex and I divorced in December. As part of the divorce decree I agreed to quit claim the house to her with the provision that she sell or refinance in 6 months. Its now July and no sale has happened. The house has been on the market the whole time, just no takers. I know that the quit claim means I have no claim on the property, but my name is still on the mortgage so I'm financially liable for the balance just as she is.

Now she is considering something called a short sale. Apparently it involves not paying the mortgage for a couple months and then having someone offer the bank less than the mortgage owed and they get the house. This seems fishy to me as I don't understand why the bank wouldn't just foreclose on the property and sell it themselves, and collect on us for the rest as they would with a repo'd car. (I'm in the collection industry, so I know a little about what goes on.)

1. Can the bank pursue us for any deficiency balance owed after this "short sale" happens?

2. What will the effect of this procedure be on my credit?

[draygnmage]

I did some research, and basically found out that yes, as with reposession, they could pursue me for the deficiency balance on the mortgage, but its up to the bank to decide whether or not they will do that.

Still no idea what this does to my credit though. It wouldn't show as a foreclosure, but it wouldn't show as paid either, would it?

[moburkes]

Originally Posted by draygnmage

I did some research, and basically found out that yes, as with reposession, they could pursue me for the deficiency balance on the mortgage, but its up to the bank to decide whether or not they will do that.

Still no idea what this does to my credit though. It wouldn't show as a foreclosure, but it wouldn't show as paid either, would it?

I think it shows as a settlement. Apparently, you didn't have a lawyer or you never would have signed that quit claim. Your lender might accept a deed in lieu of foreclosure, however, it will still require a few months of nonpayment.

Your ex cannot predict the homebuying market. Maybe she can lower the price, or offer it for rent on a month-to-month basis until it sells.

[draygnmage]

No, I didn't. We filed a dissolution on our own. I am attempting to talk her into just filing bankruptcy and quit claiming it back to me so I can rent it out or live in it and rent out the 2 other bedrooms.

What is a deed in lieu of foreclosure? I've seen the term before, but I'm not familiar with what it entails. The house has almost no equity built up and she's selling it for whatever will pay off the mortgage and closing costs. She's not looking to make money, just get out from under the loan.

Thanks for the help though.

[moburkes]

If she files BK, you are still responsible for the balance unless you file as well.

What I have described is simply turning the property back over to the bank legally without the whole foreclosure process which takes a long time and costs them, and you, lots of money.