General Question

wgallios's avatar

Could I short sale my house and have wife purchase new home under her name?

Asked by wgallios (1768points) June 14th, 2010

If my loan on my house is up-side down, could I short sale my house (I know it would damage my credit), but then try to purchase a new home under my wifes name (she is not on the loan/title)?

From what I have tried before, I would also have to be on the loan because we are married, but would the short sale on my name cause us to not get a loan?

Side note: It would be too hard of a stretch to quality for a new loan with existing due to Debt to income ratio. Also having proof the current house is rented out would not work either, we would still have to qualify to be able to pay both loans.

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11 Answers

Merriment's avatar

If your wife is not on your current loan and can afford to, independent of your finances,qualify for and purchase another home that you quit claim any interest to then it’s possible she could buy a new home while you are short selling your current home. (Make darn sure your relationship is solid as a rock because if she is the sole title/mortgage holder the property is hers 100% in the event of a divorce.)

If you would have to be on the loan in order to qualify, then the bad credit/short sell in your name will follow you to this new transaction and you will likely not qualify.

Your best bet is to stay where you are and wait for market recovery to somewhat mitigate the up side down status of your home before you do anything.

Getting out from under an upside down mortgage isn’t going to be easy and will be a pay now/pay later scenario.

Better to stick with the devil you know.

YARNLADY's avatar

You have the cart before the house. Most lenders these days will not accept ‘short sales’. Make sure your lender is on board with your plans before you go any further.

gorillapaws's avatar

@YARNLADY “cart before the house” lol thanks for the chuckle.

@wgallios This sounds pretty shady, and I wonder if you could run into fraud-related legal issues if you went down this path.

envidula61's avatar

Pardon my ignorance, but if you have a short sale, don’t you have to make up the difference to satisfy the loan? Or are you talking about letting the bank foreclose on the house?

If you pay off the mortgage, then your credit is fine, isn’t it? If you go into foreclosure, then your credit will be nothing. I don’t know if they’d let you cosign a new mortgage.

JLeslie's avatar

No, unless they have changed the rules recently and I don’t know it. Short sales must be at arms length.

Merriment's avatar

@envidula61 – A short sale has to be negotiated with the Lender.

It’s like a credit card company settling a debt for less than is actually owed just to clear the debt. It clears your debt with them but it will always show on your credit report as a “negotiated payoff” which is less traumatic than a “failure to pay” but far less appealing than a “paid in full”.

Lender’s settle for a “short payoff” when they are pretty sure the other alternative is going to be the customer filing bankruptcy or the lender’s themselves having to do a full blown foreclosure and then turn around and sell it themselves for less than the original mortgage was anyway.

JLeslie's avatar

@envidula61 And a short sale is like 50 points off of your credit rating, but foreclosure is much worse. I don’t know the exact real numbers for either.

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envidula61's avatar

@Merriment and @JLeslie Thanks for the explanations. I was not aware that banks were willing to share the losses with the borrowers. I suppose it is to their advantage, since they might lose more with foreclosure.

To the OP: I think the answer to this question must have to do with your individual circumstances. In theory, almost anything is possible. Maybe you have a mortgage broker or real estate agent who could advise you? Maybe there are places on the internet that can help you understand your hypothetical credit-worthiness. I take it that it is not possible to continue paying this mortgage in hopes this property will increase in value eventually?

Hypocrisy_Central's avatar

Fact from fiction, truth from diction. From what I gather your home is worth less now than when you purchased it. A short sale will hurt your credit but not as much as a foreclosure. Someone said banks won’t do or shy away from short sales. It looks like you are going to be stepping in pooh, pooh, you just want to get less on your shoes than more. You may have to get creative, it might be ugly but it might save you part of the loaf if it won’t save you all of it.

If I were in your situation I would seek to retain the home but lessen the hit you are taking on it providing you have 20% equity. I would use said equity to purchase some seasoned notes, hopefully 20k or more. You should be able to have an actual value higher than the cash amount you paid. I would add that to whatever funds your wife had to toss to a new home and your contribution to help her. I would take the existing home and lease it out on a lease option strategy. I would seek to get as close to my original mortgage as I could negotiate. To do that I would make it real easy for my leasee to get into my home, I would offer them no money down to move in, however if my mortgage was, say, 2,300K a month don’t know what you actually pay, I would go for 2,000k around about. Now you are only paying $300 and the difference is made up by the family wanting and hoping to get the house one day. If you have a 3–5 year lease option who knows what can happen? They might have more kids and need a bigger home and not exercise the option, then you will get the place back in your total control, it will have been kept up at no, or very little money for you, and it will be building equity back. Maybe they might want it and then you will get a boat load of money from them, and if the property rebounded in value so much the better. Also while you still have it I can only see it helping you greatly tax wise. I know it seems like work, but sometimes things that are worth it are. Good luck

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