I have a boat in my name from when I was married that was to be paid for the life of the loan by my x husband. He paid the boat for 11 years and then just stopped. Being that it is my credit, I picked up the payments, refinanced to make it affordable and put it up for sale. I owe 38K on the boat but can only get 20K for it as it has some damage that I didn know about since I havent seen it in 11 years. The bank has approved to take a "Short sale" but that I must pay the difference and while they are not willing to put it in writing they are assuring me this will not harm my credit. Is that true? Is it really a short sale if I am continuing to make monthly payments despite the fact that I no longer own it. If it is going to hurt my credit either way then should I continue to make the monthly payments which will be for another 7 or 8 years?
A short sale is where a lender (most likely a bank) agrees to the sale of a property for less than the balance of the loan. In some instances, the owner agrees to continue to pay the monthly payments, and in others the lender will agree to a reduced amount. There are no hard-and-fast rules in this area.
A deficiency balance is the difference between the total unpaid balance of the loan (includes principal and all unpaid interest, penalties and legal or other fees) and the amount that the lender is able to recoup from the short sale (the sale price of the item, sales agent fees, unpaid taxes, maintenance and other expenses).
In some instances, the lender will write a contract whereby the former owner agrees to pay the deficiency balance. In other instances, the lender will agree to forgive the deficiency. Making a broad statement about a former owner's liability in a short sale is difficult given the inconsistent behavior of lenders. The new owner is not liable for the deficiency balance.
If the lender decides to pursue the former owner for the deficiency balance legally, it will file a lawsuit in the state where the former owner resides. If the court agrees with the lender, it will issue an order called a deficiency judgment, which allows the judgment-creditor (the lender) to collect the debt.
Generally speaking, a short sale or deed in lieu of foreclosure will be reported by the lender to the credit reporting agencies. A short sale or deed in lieu of foreclosure may cause a slight decrease in your credit score. In some instances I am aware of, a short sale made zero impact on the consumer's credit score.
Some of the general discussion above addresses your questions. Regarding ownership, in a short sale the owner is still on title. This is in contrast to a deed in lieu of foreclosure. In a deed in lieu of foreclosure, the lender agrees to not foreclose in exchange for the owner voluntarily signing over the title of the property to the lender. In a deed in lieu of foreclosure, the change in title changes the ownership rights. A short sale agreement is different in that ownership rights are not changed when the lender agrees to allow a short sale.
Regarding continuing to make payments, consult with the lender. If you are in financial distress, explain this fact and the lender may agree to a reduced monthly payment.
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