Foreclosure vs. Short Sale vs. Deed in Lieu

[runningaround]

My ex-husband and I still own a house together.  It has been for sale for 6 months with no luck.  We're hearing from the realtor that properties like ours are just not selling and it could take another 6-9 months for us to get an offer.  

He's still living in the house and wants to move on.  He's suggesting that we do a short sale or deed in lieu, but we are pretty sure that the lender will not approve either, so that leaves us with foreclosing.

What am I looking at here?  How badly is this going to affect me?  

[StartingOver10]

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@runningaround wrote:

My ex-husband and I still own a house together.  It has been for sale for 6 months with no luck.  We're hearing from the realtor that properties like ours are just not selling and it could take another 6-9 months for us to get an offer.  

He's still living in the house and wants to move on.  He's suggesting that we do a short sale or deed in lieu, but we are pretty sure that the lender will not approve either, so that leaves us with foreclosing.

What am I looking at here?  How badly is this going to affect me?  

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The Realtor must have more information than what was disclosed to you. There are really only two reasons a home doesn't sell:  price and/or condition.

It is better for you and your credit recovery to have a short sale than a foreclosure.

Deed in Lieu is offered by the lender only if your home is on the market and actively marketed for a certain time period (3 months is common). But the house has to be priced right for its condition.

Where are you that your market hasn't turned around yet? Some place in Canada? You might want to check with some other agents..

[runningaround]

Thanks for the info.  We have checked with a couple of other agents.  We are priced very fairly but our house is unique.  Custom home in a rural area set up for horses.  Not a typical home in a typical sub-division.  The house is in great condition (less than 10 years old).  Our realtor has been researching other properties similar to ours - they are simply not selling.  

[ezdriver]

My assumption is that you have not been paying the mortgage. If that is not so, why would you continue to pay the mortgage on a property that you do not want since the mortgagor will have no incentive to foreclose while payments are being made. If you are not paying the mortgage, eventually the mortgagor will initiate a foreclosure. The mortgagor is controlling all options and I see no way for you to rid yourself of that property without "denting" your credit profile.

[TimeToRecover]

Have you considered leasing it out until the market turns around?

[runningaround]

We are still paying on the mortgage.  It's just that he doesn't want to live there anymore.  I can't afford the place on my own.  He is talking about letting it go into foreclosure unless the mortgage co. approves a short sale (we don't have a buyer) or a deed-in-lieu.  Which I don't know that they will approve since we have still been making the payments.

The rental market for our kind of house is not going to be there either.

[StartingOver10]

It seems very strange to me that you have a primary residence in a location that is so remote and undesirable that both the resale market and the rental market are non-existent at this time. Usually sales prices and rental rates are inversely related. In this case you are saying the bottom of the market has dropped out of both avenues, not just one. That is very, very, very unusual.

I am sorry, I just don't buy it. There are tough markets. There are markets where sales are slow (none of which I am aware of now). Where in the world is this place that is so undesirable that no one in the world wants to move there and that the people that live there are trying to get out????

The solution to selling a property that is unsaleable is to either drop the price until it is attractive to a buyer or to improve the property in relation to its price so there is 'value' to the buyer to purchase.

If you drop the price below the amount of the outstanding mortgage(s), then you have a short sale offering that must receive bank approval before it can close because the current loan will not be paid off at the time of closing.

Keep dropping the price until you get an offer. I have seen properties on the market for many thousands less than their value in order to generate interest (banks do it all the time with REO properties). 

If the bank doesn't approve the short sale, then the fact that you have gone through this process will usually, but not always, push them to accelerate the foreclosure if you are not making payments. If you are making payments then the lender doesn't have a reason to foreclose.

Another thought - you can sell the house with a short payoff by bringing in the difference at closing so that the bank loan is paid off in full. Then you don't have to go through the short sale process.

Let me offer one more point:  in my experience there is usually some other issue at hand when a property is unsaleable and the couple is divorced. That issue usually has nothing to do with the property and everything to do with the parties involved. Could be anything - only you and your ex can determine what the real issue is that is preventing the proper sale.

[runningaround]

While the markets in the cities and suburbs are red hot right now, rural horse properties are not selling. We are now seeing houses like ours on the market for 12-15 months. In the suburbs it's sometimes less than 12 hours. We are not close to a major city, the closest grocery store is 12 miles away. Our property is built with horses in mind. Barn, pastures, fencing , etc. So the market for the house is limited in that regards as well. We have dropped the price twice now and haven't had a showing in 6 weeks.

[StartingOver10]

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@runningaround wrote:
While the markets in the cities and suburbs are red hot right now, rural horse properties are not selling. We are now seeing houses like ours on the market for 12-15 months. In the suburbs it's sometimes less than 12 hours. We are not close to a major city, the closest grocery store is 12 miles away. Our property is built with horses in mind. Barn, pastures, fencing , etc. So the market for the house is limited in that regards as well. We have dropped the price twice now and haven't had a showing in 6 weeks.

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Is there a 'season' where these types of properties sell more quickly?

If so, is this the season or the off season?

Do the photos showcase the property properly?

Does your Realtor have horsefarm experience?

There is specialized marketing just to the horsefarm set of buyers that your Realtor should be utilizing.  If your Realtor doesn't have the horsefarm connections necessary to sell your property, then get one that does have those connections. It is a fairly small world (IME).

Review the comparables and the condition of your property again with your Realtor or another Realtor that is more aggressive than the one you have now.

I understand your point completely (I'm a Realtor myself for 35+ years). There is a price that is attractive for the property given its current condition; and, with no showings in six weeks you haven't hit that price yet.

[runningaround]

All of the realtors we have talked to tell us that normally this is the time of year that houses in general sell. But that horse properties are NOT selling. Our house has been advertised extensively, both on equestrian sites and MLS, we are priced competitively, the house is in great shape with lots of amenities. The house was appraised for more than we are asking. At this rate we are already taking a 5-figure loss.