Short Sale question regarding hardship & savings accounts?

Question by Neither Republican nor Democrat: Short Sale question regarding hardship & savings accounts?
If a person wants to do a short sale (owes more on the house than what he/she can sell it for) and approaches the bank, I’ve found out that the bank wants to know how much savings the person has. Why? Isn’t the bottom line for the bank whether or not it would cost it more money to have the owner sell for less than they owe or to have to take it back in a foreclosure and then sell it themselves? Why would they care if they have say $ 40,000 in a savings account. It’s not illegal for someone to just stop making payments on the house and walk away, is it?

I ask this because a woman called me last night and said she had a hardship (her husband died two months ago) and wanted to move to where her family was to take care of her. But, she had $ 40,000 in the bank. She had already contacted the bank and when she saw where they asked how much money she had, she knew she couldn’t do a short sale, but she had already stopped making the payments.
how is it illegal? We don’t have a debtors prison.
Mike – thank you. That makes sense, but what are the odds of a bank actually doing a judicial foreclosure. In California almost all foreclosures are really trustee sales to save the cost of taking back the property.

Best answer:

Answer by bavery42289
google it

Add your own answer in the comments!

6 Comments/Reviews

  • bl w says:

    The bank requires the buyer to be experiencing a FINANCIAL hardship in order to justify discounting the mortgage. With 40k in the bank, she’s disqualified. Some people would take the money out of the bank. Ideally, she shouldn’t keep this amount in the bank anyhow. You really have given up absolute control of access to your money. You are literally getting permission to get it each time you withdraw it. She can put the money in her sock drawer or invest it into something she doesn’t own. They cant take what she doesn’t have. She will need to live a new life of owning nothing in her name. She would need to start having everything owned by an entity she can control. Even that wont help if she does it incorrectly. Basically, if she goes to Vegas to sooth her grieving and loses it all then there is no longer 40k to get. So they get a judgement, it only attaches to what she owns in her name.

    She could walk away from the property or reinstate the loan and find an investor to take over her payments. The deficiency judgment may or may not be pursued. She may or may not get a 1099 tax notice for the difference. It all depends on the bank.

  • godged says:

    It’s pretty bold to assume that this lady has “little to no income” because she lost her husband.

    And it is not “illegal” to stop making payments. It will trash her credit score and the bank will come after her, but she isn’t facing criminal charges.

    The bank wants to know about her ability to pay, and that is why they are interested in the savings account. If she has $ 40,000 in savings, she has the ability to pay. If she knew she couldn’t do a short sale, why isn’t she trying to sell the property and move on? I would assume in California that the lender could pursue obtaining that $ 40,000 – or whatever the loss to the lender is going to be, she should talk to a RE attorney before she lets this go into foreclosure.

    The bottom line is that the bank will foreclose since she has stopped paying. From dealing with lenders, they really don’t seem to care about foreclosing rather than allowing the short sale.

  • goz1111 says:

    the reason the bank wants to know how much assets the person has before approving a short sale is simple

    the bank is not in the business to lose monies if they can avoid it, therefore if the person asking for a short sale has assets available to contribute to selling the house, in this case she could use the 40K to take pay off the difference between a sale price and the note, they want that information when making a decision as to short sale or foreclosure

  • jimmywalls1982 says:

    The bank made a contract with the person who owns the house and wants to recover the full value of the loan. Most individual home loans are recourse which means that the bank can go after the individual for more than just the house.
    They can’t put you in jail for failure to pay debt unless it is the government you owe money to.

  • Mike says:

    I recommend that she contact an attorney who specializes in real estate law. At least she has some money to pay legal sees.

    I understand how important that money is for her to live on now that her husband has died, she probably has little or no income.

    The attorney will advise her how best too protect that money.

    If she is in a state that permits jucicial forclosures and deficiency judgments the bank could foreclose and get a deficiency judgment against her and take the $ 40,000 from her.

    the bank will try to get everything that they can get.

    She will need the attorney to protect her and her remaining money from the bank,

    (edit to asker)

    Yes in California where I live most foreclosures are non judicial and therefore a deficiency judgement is barred in those cases..

    However as I understand the law in California the lender has the option to elect a judicial forclosure but because of the time and expense most lenders do not go that route.

    So I would say that yes she is probably safe from a deficiency judgment in California because the lender is not likely to elect judicial foreclosure.

    In general though I recommend that someone who is facing a foreclosue should get representaton by an attorney who specializes in real estate law.

    There are some significant legal issues involved and it takes an attorney tp protect your rights, particularly in a foreclosure.

    I think that it is particularly important that she protect that $ 40,000. She will probably need that money to live on.

  • Susan T says:

    It is illegal to stop making payments and walk away.

Powered by Yahoo! Answers