Thank you for that blog!

Some facts:
Wife is a master degree RN and has been employed for 20 years straight, she has no “derogs” of any kind and currently hods a well paying position.

I am near my MBA completion and have 25 years in the land development and home construction industry. My credit report is flawless with the exception of 1 incident of a 30 day report.

With the down turn in the market I was let go from my position and in turn lost we our home to a short sale. I did manage to overt any late payments during the process. This kept our credit in perfect order with the exception of the short sale.

Both my wife and I have paid off every single revolving debt. Since this incident started. We are now down to the two car payments and I think one of those will be sold shortly.

This has been a life altering event. I will never go back to owing anyone anything. I am about to rent an apartment with my wife and two boys and backing away from all commitments with the obvious exception of this rental agreement. In short, I owe nobody anything.

It might take a moment to get used to but there is upside to this if you have money to end your debt. I now take the wife and kids to sporting events, dinners, and all sorts of recreational activities. We are now down to a one income house hold and I have no reason to feel obligated to return to employment. My reason is this. Because I can not buy a home I can no longer take advantage of the interest rate deduction so going back to work will only increase my family income and place me in a higher tax bracket and then then get hammered on income tax. So I choose not to work. My blood presure is way down and I don’t deal with corporate america any longer. It is worth it. Yes I drive a 2004 model car and will probably drive if for some time but I am actually enjoying life now. I will never go back to owing money to a bank. The financial system can collapse I could care less.

My question is: regarding foreclosure vs. short sale, outside of the FICO score issues, is there something to be concerned about regarding capital gains if we do a short sale? How will either of these decision affect my taxes? I can’t bare the thought of losing my home AND owing a ton of money to anyone, at the end of it.
We live in CA, if anyone has specific info.

By the way, I lost my job and this resulted in our default, not because we are bums. We want to stay in our home but no one seems to understand the process very well, so we are even more confused.

Additionally, can we also qualify for a loan mod. on the 2nd mortgage?

THANK YOU!!

The best thing to do at this point is to talk to your lender on your existing home. You should explain your story and try to work out a solution. I would not recommend stopping payment becuase regardless of your situation the credit scoring system will bring your score down very quickly and it will take you years to bring it back up to your current level. It’ll be a longer road but keep making the payment and try to negotiate a deal with your current bank before taking on a new house. The way things are right now there are plenty of houses at reasonable prices and even if you have to rent for a while in your new location as you work out your current home mortgage situation its more important to preserve your credit and honor your obligation to your current bank.

Luckily we qualified to buy another home in the new state at half the price we bought this one at, but even though we “qualified” to afford both, we really can’t keep both and survive financially for long. We have never been late on any payment and now I hear to even be able to do a short sale we have to stop making payments on this house. Should we stop payments on this house as soon as we close on the other one (March 31st)? Or, because of the new house will we be expected to pay the short fall on this house?

We both have credit scores over 750 right now. How will a short sale effect our credit score & future car and student loans we may need? Are we looking at having to wait a couple years to be able to buy another car with a loan?

Thanks for your input. While we try to keep things current, with the volume of content on this blog its hard to go back and update every singe post with the most current information. It’s readers like you who make this a better resource. So, thank you!

Establishing a new policy for preforeclosure [short] sales. A preforeclosure sale involves the sale of the property by the borrower to a third party for less than the amount owed to satisfy the delinquent mortgage, as agreed to by the lender, investor, and mortgage insurer. Due to the increased incidence of preforeclosure sales, Fannie Mae is
establishing a 2-year elapsed time period for reestablishing credit following completion of the action.

Read the complete guideline amendment at:

https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0816.pdf

As you can see, then, a short sale is much better for a homeowner than foreclosure or deed-in-lieu. While the short term impact to one’s FICO score may be the same for all three events, the homeowner can QUALIFY for a new loan two years after the short payoff, so long as the borrower’s score is 680.

Your point is very well taken. I only posted this as a this person made a very interesting point. You are correct in your assessment.

Thanks for stopping by.