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picture121 · Joined: 21 Sep 2008 Posts: 15 8.62 Dollars($)

I have been trying to refi for cash out. I have been told that the value in the home isn't there and I can only borrow up to 85% of the value. Hard to say the value, but an elderly couple recently sold on my block for 350K which killed any possible refi. However, now I may even be upsidedown. We owe 488k and paid 521k 2yrs ago.

Someone called me and offered to try to do a "Short Pay" option which is different than a short sale or a modification. The goal is hopefully neg. w/ my current lien holder (a small local bank) for the new appraised value and this company would buy the loan at the new appraised value.

So if appraisal came in at 420K, they would renegotiate for that amount. Not sure what the catch is or what incentive the bank has to sell the loan at a lower price, but I am very interested. Our credit is about mid 600's thanks to the creditors lowering the credit limits on all our cards and total DTI is b/t 31% and 35%.

Can anyone explain what this is? or what my options are?
Oh, we have about 30K in unsecured debt and income is around 190K.

Niicss · Posted: Wed Mar 10, 2010 3:06 am Post subject:

As far as I can understand, short pay is also known as "discounted payoff." In this process, the lender would accept less than what is owed in lieu of foreclosure. I feel this is similar to a deed in lieu of foreclosure. You can contact your lender and check out if he is ready to accept your short pay request.

picture121 · Joined: 21 Sep 2008 Posts: 15 8.62 Dollars($)

The new Lender who contacted me said that their lawyer would be contacting my lender to negotiate the "discounted payoff". I have never been late on my MTG payment since I've owned the property.

Do you think the bank would accept such an offer just because they are a small bank and I am upside down? I am trying to see the advantage for my current Lien Holder to accept such an offer. Also, if it is accepted would I have to pay Capital Gains Taxes?

Niicss · Posted: Thu Mar 11, 2010 2:32 am Post subject:

The bank will accept the offer if they find it profitable for themselves. It will be completely your lender's discretion whether or not he would accept the discounted payoff. I don't think you would be liable for paying the capital gains taxes. I don't think you would be earning profit if the lender gets ready for a discounted pay off.

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What is a "Short Pay"