Thursday, March 4, 2010

Short Sales touted as new solution - Watch Out!

Short Sales! Many people in debt work tirelessly to create a short sale. 7 of 10 never close, says Florida Real Estate Attorney Michael Hirsch.

Even CNN today hopped on the bandwagon of so called "Short Sales" as the new answer to the mortgage foreclosure and debt crisis. Clark Howard reported this morning that Banks are now looking to streamline the process and approvals for short sales. That's good for the consumer, right?

Wrong.

Very wrong.

It is important to understand the public perception of what a "short sale" actually is. People in financial trouble have an even scarier notion. The popular understanding in the public is that a short sale is:
  1. the sale of real estate
  2. at fair market value
  3. by the Owner
  4. with permission from the Bank (mortgage holder)

The problem is the next myth that most of the public and definitely the person in financial trouble tend to believe:

5. that absolves the Owner of any further liability

6. and helps your credit rating

Most people believe if they short sale the property they are free of the debt surrounding the house. Not necessarily. You really have to have a competent attorney read all the paperwork. Most short sales leave you on the hook for the deficiency, that is the balance of the note after the proceeds of the sale is applied to the note.

Another issue is that often the Bank "forgives" the balance, and you receive a for 1099 for the balance of the loan not paid. That means taxes may be due.

Further, the short sale may not affect your credit at all. There is little evidence that the failure to make payments, followed by a sale in which the balance is not paid is any worse than filing bankruptcy.

Short sales are NOT the panacea that everyone is proclaiming. Banks are merely trying to mitigate their up front losses on a sale, but don't be fooled into thinking you are guaranteed to walk away with no further debt or obligation.

Think twice and read the documents 3 times!

And go see a great attorney!

5 comments:

Kim said...

The other myth is that banks are just lining up to approve your short sale! I have a fellow teacher who tried to short-sell her townhouse. The bank refused to agree to the sale at market price (half the loan balance). Now she's in foreclosure and wondering should she consult a foreclosure attorney or a tax attorney about how big a tax hit she's going to take when she gets that 1099 from her mortgage company. If Congress had been truly interested in the little guy in this whole mortgage fiasco, they would've temporarily lifted the taxable status of a foreclosed mortgage.

Law Offices of Paul McLester said...

Another scam perpetuated by the banks.

Scott Forgey said...

Short Sale attorney that knows Real Estate and these situations is Michael Hirsch in Ft. Lauderdale Florida.

Scott Forgey

Denise said...

What about these seminars that they have around the country on "educating" the owner on short sales? Are they providing adequate information to the owner that is in trouble? Or is that just another way for getting more people to jump on that bandwagon? I know that I don't understand everything about a short sale. Are people really being educated there?

Scott Forgey said...

Denise,

Seminars are no match for the teams of lawyer banks have that draft these agreements. It is tough reading for most lawyers, let alone the public.

Watch out!