Bankruptcy is the number one reason for a mortgagor (Borrower), to simply let a home go into foreclosure. Bankruptcy Attorneys use bankruptcy as the tool that it's meant for when they assist consumers with their options when they are so far behind in debt and cannot set up a payment plan for any of their debts owed due to job loss, illness, divorce, law suits.
Why would any one do a short sale if they are filing bankruptcy?
I work in an office with approximately 6 attorneys who are upset at Real Estate professionals, who are offering financial advice without looking at the entire financial situation of the borrower.
RealtorsÂ® are supposed to abide by the Real Estate Code of Ethics!
The Code of Ethics clearly states:
"Article 11 RealtorsÂ® are knowledgeable and competent in the fields of practice in which they engage or they get assistance from a knowledgeable professional, or disclose any lack of expertise to their client."
"Article 13 RealtorsÂ® do not engage in the unauthorized practice of law. This includes giving generalized advice to consumers without looking at the clients entire financial portfolio with the advice of Accountants and Attorneys. Real Estate Agents do not know all of the laws and cannot give tax or legal advice."
Speaking of giving legal advice, RealtorsÂ® who tell their client to stop paying the mortgage to complete a short sale, without advising a Real Estate Law Attorney, are in breach of the code of ethics. While this may be the proper advice in 9o-95% of most circumstances with short sales what if the sale falls into the 5-10% where stopping payment was not necessary?
Consumers who are reading this should seek the advice of an attorney and an accountant. Also, laws are different in each State. There is no easy answer for all consumers, facing the disappointment of losing a home, as each consumer's situation can be different.
Consulting the advice of legal and tax professionals should be the first item on the list of things to do!
As for the person who commented on walking away, I wrote an entire book on foreclosure options and why this should be a last resort only. There are many other options to explore before doing that, and I would NEVER advise a client to walk away without exploring them.
Rachel LaMar, J.D.
LaMar Real Estate
And the comments about credit damage and when you can get a loan? First off, most of the comments appear wrong to me. Second, how credit bureaus and lenders do things by the time these folks get back on their feet may have completely changed. I think don't ASSuME is more appropriate than KISS here.
What I tell Sellers is - you need legal and financial advice that I can't give you, and then if you choose to Short Sell I can help.
Short sale is not a "one size fits all" option. In my experience, every seller, and every situation, is uniquely different, and must be treated as such.
Our best tool in this situation is our ability to listen. Just as a doctor would not walk into a room with a diagnosis before meeting a patient, we must learn not to presume a short sale is the best solution for any client.
Realtors must present, and sellers must investigate, ALL options available to the homeowner. As I have said over and over, Realtors are not attorneys, accountants, or tax specialists. Those jobs are best left to the trained professionals in each arena, and homeowners should make use of their services before undertaking any short sale, foreclosure, bankruptcy, or cash for keys scenario.
The Bremner Group at Coldwell Banker
REALTOR, 00588885, ABR, CDPE, eAgent, CSP, SFR, HRC, CRE
(O) 310-571-1364 DIRECT
Giving advice to consumers without getting expert consultations from legal and tax provessionals can cause more lawsuits that our profession does not need.
A short sale is a real estate transaction that requires an approval from the lender - period.
Itâ€™s not some complicated legal process that requires paying an attorney. As a matter of fact, watch out for that trick!!
Now donâ€™t get me wrong. Short sales are most definitely a different animal than a regular real estate transaction because once you stop making your mortgage payments, the clock starts ticking and the hangman starts preparing his noose. Youâ€™ll get one shot to do a successful short sale. If your agent is inexperienced at short sales, makes mistakes, gives up, slacks off, drops the ball, or simply doesnâ€™t know how to negotiate with banks, youâ€™ll wind up being foreclosed on and believe me, you do not want to go through a foreclosure.
A foreclosure will devastate your credit. Your credit score can be lowered by as much as 300-400 points (or more) and youâ€™ll be hounded day and night by your lender. Even worse, youâ€™ll have difficulty getting credit cards, auto loans or even renting a home or an apartment for the next 7 years.
Your home will be repossessed by the bank and the bank will sell your home, either at auction, or more likely through a real estate agent, with a large sign out front that says "Bank Foreclosure".
James D. Sanford III/Certified Author and Short Sale Expert
It is agents like that the RE industry needs to do without.
Rachel - someone would be foreclosed on out of fear? Can you elaborate? Totally agree that an informed seller needs to explore all options. But at the end of the day, there is life after foreclosure...if there is any fear, it should be of (not directed at you ;-) ) poor advice from gumshoe realtors who are in above their head - but hey they have their short sale designation so they must know what they are doing.....
Maybe fear and pain are being used interchangeably. Short sales can be very frustrating. Some can take years and are a circular door of buyers coming and going. You get fed up with the whole thing - especially the apparent sluggishness of the banks to move forward in a timely fashion and agree to what is quite obviously market price.
That pain goes away by turning your back and walking away. Agreed, it may not be the best long term solution for many - but that isn't what is causing the current pain and in the short term, dumping the property on the bank gets it off your back. Remember, many people in these situations are several tens of thousands of dollars behind in their payments. You can say loan modification, but that is another uncertain long and tedious process which is just more pain. The hole just gets deeper and deeper. In a society in which instantaneous gratification/relief prevails, foreclosure can be a short term pain reliever.
Rob and Ciara - you guys totally get it - on many levels. Bravo to you!
For more buying and selling tips, please visit http://www.RochesterHomeLocator.com
Salafia Sold Team
This question is completely open ended. If it wasn't, the answer would be yes or no, which would suite you because that would be simple. But short sales are not simple and there is no "right" answer to this question.
And yes, consumers do see this forum, like all forums on Trulia. It isn't privatized to only realtors, as evidenced by your presence here as a lender.
Simple is just answering the OP's question. Respect their right to do this. You want your chance to discuss whatever, in more detail, start another thread. That's simple.
Happy funding, Rudi
There is nothing simple about short sales or for that matter, lending these days. Not sure how you feel otherwise.
Rudi - apparently ignorance is truly bliss - happy lending.
Evan - no it is not that simple....and Deed in Lou?!? - that is funny - stop while you are behind.
I've been told Trulia is basically a Real Estate Pro to Real Estate Pro Forum. That's why I'm on here. To expose my service to you. But, should a consumer happen to see this and realize some of you can't answer a simple question, how does that build confidence, or your business?
Just my two cents.
Happy funding, Rudi
Many Realtors (& some clients) get upset with us for our never ending, "Consult your Accountant", "Consult your Attorney", however, this is because although it is our job to list and sell a property that is a short sale, it is NOT our job to recommend a short sale!
Although a Realtor may know the answers to these questions, they are different for each person's financial situation. Unfortunately, many Realtors feel the need to prove their knowledge to their clients in these situations. Keep that knowledge to yourself for your personal situations and investments.
When it comes to giving the "BEST" advice to your clients, you can state that guidelines for credit scoring are ever changing, as are the ramifications of short sales and foreclosures on ones credit standing. Recommend consulting their accountant, financial adviser or attorney. If you want to feel helpful, have a list of several good real estate attorneys, financial advisers and accountants. This way, as a professional, you are recommending the services of another professional to assist your client in making an informed decision.
Seems like we did get off track in discussing what to say to clients, as Kayvon just wanted our "opinion" on the reason homeowners would ss over f/c (and Kayvon is asking agent to agent)...........with that said, Kayvon, it's my understanding that the benefit of a short sale over foreclosure is the waiver of the deficiency judgment for the Seller. :-)
Short sale is always the best alternative the bank can take full loss or majority of the loss in your situation, you can also apply for the HAFA program that can assist you with moving expenses, and you can purchase under your credit in 2 years from sale of short sale.
If foreclosed your credit is destroyed for years and lender can come back years after the foreclosure and recover his loss,
If u don't want to do short sale you can always do a Deed in Lou ( give back the home to bank) and negotiate your terms if possible
I also think agents need to be careful when "asking" open-ended questions. It tends to steer the "thread" of answers off track, posing issues of misinformation and speculation.
Good side to this: many agents step up with accurate information to correct misinformation.
Stick to selling real estate, not acting like you know why sellers short short sale or foreclose. Speculation like that will get you and your broker in trouble. You have got to know and heed your limitations.
By now most folks have been exposed to most information regarding foreclosures. What they have learned is if they are behind in payments, there is no advantage to the short sale. It's just more hassel and stress.
If they just do nothing, they can live there for around two years, payment free. In fact, it's already happened before, if errors are found in their foreclosure process, they may end up owning the home free and clear.
What's the best option?
Happy funding, Rudi
Lynn911 Dallas Realtor & Consultant, Loan Officer, Credit Repair Advisor
The Michael Group - Dallas Business Journal Top Ranked Realtors
There is still damage to your credit - when a short sale is done, it is still documented on your credit but won't have the same impact as a foreclosure for most creditors.
Tax Consequences - there may be tax consequences if the bank forgives the debit and will issue a 1099 to the IRS for the amount of debt forgiven.
Bank could demand payment for their loss - the bank doesn't have to forgive the debt. They are able to ask you to pay them back for the difference on the sale and what is owed, but you will need to agree to this.
There are no guarantees in a short sale - whether the bank will approve the sale or forgive your debt, but short sales offer a better alternative to minimize the downside of facing a foreclosure.
With a short sale deficiency judgments can be negotiated OUT so that the short sale is approved with all lien holders releasing their interest completely.
Regarding your specific question Kayvon: It's a matter of most homeowners being uneducated about their options & the pros & cons of each choice, Short Sale or Foreclosure. Many homeowners think, "heck I'll just do a deed in lieu & give the house back to the bank, I don't care" & they think that's the end of the story & then later on, that equity loan they took out, that bank is knocking on the door of their rental property with a DJ notice.
Realtor Since 1996
They are in denial about the home being in foreclosure and don't know their options.
The Carrabba Group
Keller Williams Hollywood Hills
Please see my blog "5 tips to avoid foreclsoure"
I would say the number 1 reason to go to foreclosure over a short sale is FEAR of the UNKNOWN. Most people are so fearful that they do realize that banks will work with them and by the time they are clued in it is too lake.