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!

Bankruptcy Filings are up, up, up!

The Associated Press reported that the number of individual (consumer) and business bankruptcies are up again this year. This increase is despite a 2005 Bankruptcy Reform Act that endeavored to make it much more difficult for individuals to file for their Federal Bankruptcy Protection that has been around since the beginning of our country.

According to court records analyzed by the AP last month, in the past 12 months more than 1.2 million people filed for bankruptcy protection. Bob Lawless, a law professor at the University of Illinois College of Law predicts that there will be 1.5 million bankruptcies this year, followed by 1.6 million next year. In Broward, Palm Beach and Miami-Dade counties 2,007 people filed for bankruptcy in March of this year.

In a speech to Consumer Bankruptcy Attorneys by Scott Forgey, citing current unemployment intensity of both numbers and durations, and extrapolating from the NAFTA bankruptcies that his firm filed in the 90's in the mid west, Scott expects that the number of filings will be nearer to 1.5 million for the next five to seven years. That the economy may turn around in 3 years is years too late for the average worker.

Most workers and consumers have less than a 3 month cash reserve, instead relying on credit. Workforce One of Broward County confirmed that most employees that are unemployed past 3 months after any severance pay are beginning to miss payments and are in danger of defaulting on major items, like mortgages.

There is no safety net. Credit Cards debt is the worst of all possible solutions to most of the desperate, but it is their last solution. The new legislation will do nothing to stop the increase of unsecured and high interest loans that people turn to as a last resort.

Who is going to help the working class?

What is going to happen to all who feed on their consumer spending?


With the working class officially bankrupt, the domino effect is inevitable.