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Question about selling a property without going through shortsale/foreclosure?

My friend wants to sell her house but doesn't want to ruin her credit. She still owes about $ 200 k but the market sells for only about $ 130K. If she sells for $ 130 K what's going to happen to the rest of the money she owes to the lender ? can she be forgiven ? or she won't be able to sell unless the lender gets paid in full ?

Public Comments

1. it is called the mortgage forgiveness act that Bush signed.. they can not come after her.. the banks got their bail out and to come after her would be a double bail out, so to say.. she is going to need to call the lender, better yet, have her realtor spend the hours on hold with the lender and talk about what you are going to do. **apparently no one who answered below is familiar with mortgage compliance law..
2. She needs to pay off all liens on the property including what she owes the lender. That means if she sold for $130k and came to closing with $70k she would be able to sell. Otherwise there is no way other than the short sale or foreclosure process. In order to qualify for a short sale she will have to deal directly with the bank to see if they will approve a short sale. If she cannot show good reason for not paying her mortgage then she will have to continue her obligation as per contract. If she walks then her credit will be trashed.
3. She either has to come up with the 70k difference out of pocket (not likely), do a short sale, a foreclosure, a loan modification, or keep paying the mortgage and hope values go up. A short sale is when someone sells a property and the bank covers the deficit, so the bank takes a loss. The main problem is, the bank is not so likely to do this unless she is already not paying her mortgage, which would ruin her credit (and of course a foreclosure would ruin it even more). She can call the bank, explain that she isn't going to be able to keep paying the mortgage and get the short sale started. The bank won't start ruining her credit until she actually is late, but they also won't have much impetus to move forward with the short sale. A loan modification is when the bank simply lowers her mortgage/ monthly payment, but they won't lower it any more than they have to, and like the short sale you may have to be late before they really get moving on this (not sure, this is just my gut feeling). Sorry, but if she is going to get out of paying the loan in full there is going to be some downside no matter how you crack it.
4. I would call the lender, they will send out a 'hardship' package. You usually have to be 3 months behind in order for them to work with you at all. In this market, it would be better for her to stay in the house, see if she can get the payment reduced than to move. There is no way around coming up 70,000 short, it would have to be a short sale. However, I have heard a short sale lowers your credit about 100 points, a foreclosure lowers it around 300 points.
5. Hi Jeny, I'll keep it short and sweet. If your friend sells for $130k she still owes the bank $70k. If she cannot pay she has two options... File for bankruptcy or default on the loan. Either way her credit will be hit hard. 100 points? No way. She will easily lose 200-300 points for either option. "The effect on a consumer's credit report -- foreclosure vs. short sale -- is the difference between being hit by a train or a bus,"