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Short Sales for Seniors with Assets

I’ve been thinking a lot lately about a relative who is going to be selling his home in the coming months and moving into an assisted living facility.  Thankfully he owns his home outright and has no liens on the property.

But, what if he didn’t own the home outright? What if he owed the bank more than its market value and he had to short sell the home because of his medical condition(s)? What if he had a fair amount of assets BUT the assets were going to be used for his tenure at the assisted living facility? What if these assets were in bank accounts as opposed to other “protected” retirement accounts. How would his lender consider these assets? Would he qualify for a short sale? Would he be required to make a cash contribution to the transaction? Would his lender or his lender’s faceless investor want him to sign a promissory note to be paid off over 20 years (yes, I really just wrote that)?

From a Public Relations standpoint, it would probably be in the bank’s best interest to be somewhat lenient in this matter, however, the bottom line is that the bank must make a business decision whether it’s public relations driven or financially based.

What’s the decision going to be?

I’d like to think that a lender would be willing to consider this short sale situation a little differently than some of the other “financial hardships” I’ve seen in the past. However, in the past 4 years through processing over 450 short sales, I’ve seen too many lender decisions that just don’t make a lot of sense. Anyone have any experiences with a scenario similar to this one? If not, what are your thoughts? Do you think the lender should be more lenient, less lenient or indifferent to the situation and base it strictly on internal policies?

Comments (or experiences) anyone?

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Categories: Uncategorized
  1. November 3, 2010 at 1:30 pm

    I got stuck with an investment property that I bought near the peak and did not flip in time as it was new construction and the closing didn’t happen for nearly 2 years into the market drop. The appraisal that the bank relied on when funding the loan looked only at other units closed in the same new development as comps. Had they looked outside at the rest of the market, they would have seen that prices had already dropped by 40% or more and that by funding the loan, I would be upsidedown immediately. I rented the unit to help cover the negative cash flow. Each year the rent went down along with the property value. When I submitted for a loan modification to reduce my 7% rate down to 4%, after 5 months of “processing” they sent me a letter saying that I did not qualify for modification and I should call their 800# about doing a deed in lieu or a short sale.

    Now wait a minute…let’s think this one through…
    I’m asking them to reduce their interest income from $14,000 to $8,000 per year for the next 5 years. I’m not asking for a reduction of principle or for them to take a loss. Just reduce their income to help me survive through the down market. Instead, they would prefer that I do a short sale, where they might get a net $65,000 on a $200,000 note. So, their logic is that it is better to take a $135,000 loss than to reduce their income by $6,000 per year for a few years.

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