Using last available cash to buy smaller home, while short sale on existing.

I've had two sellers lately with the same situation and want to know if anyone has had an actual transaction like this.

- Seller is in a home they can no longer afford due to hardship

- Based on current situation it is obvious they will run out of financial resourses in less than a year

- They have enough cash to make a downpayment on a small home and want to use most of their cash to get into a home, knowing that if they don't use the cash now it will be gone

- Also they know feel that with the short sale the bank will ask for them to bring that cash to closing

 

I've never had this experience and have no idea how the bank will react. I would imagine the bank will want the deficiency repaid. Can they place a lien on the new home for the deficiency?

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Great question - I have the same scenario.
how do you think they will qualify for a new mortgage, with the old mortgage still on their report? They must be able to demonstrate that they have enough income and assets to pay both mortgages.
Owner finance.. My folks tried for 8 months to work out a LM with a bank.. and they were turned down over and over. Their property is worth half what they owe due to all the foreclosures around them. There is no way they could sell their house for what they owe.

They had the house built.. they lived there 10 years.. never late with payments, HOA or taxes. As a self employed businessman, the economy tanks, his business suffers and before you know it, they get behind. They had excellent credit until the beginning of last year when it finally caught up with them.

I am getting offers in on the property at 1/3 of the owed balance - with comps to back the offers up. Pretty sad scenario. I say that... but things could be a whole lot worse.
Helen, you are correct about using owner finance! Both sellers had found a property and seller that would work with owner financing due to their good credit score and seeing their financial situation.

I'm assuming in a case like that the bank would definately not forgive any deficiency though.
Janet - I'll keep you posted on DJ.. If the bank chooses to go that route, it might be best for the seller to just let it go to foreclosure and quit trying to jump thru hoops. What are your thoughts? Does a bankruptcy afterwards clear a deficiency judgement?

What really gets me is these folks were willing to stay put.. and work out their loan. Even if it meant stretching out their payments to 40 years with a lower interest. The bank had them jump thru hoops for 8 months - to say "no."

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