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Kayvon Shahir, Real Estate Pro in West Los Angeles, CA

What is the number one single reason a homeowner would elect to let their home go to foreclosure versus doing a short sale?

Asked by Kayvon Shahir, West Los Angeles, CA Tue Jan 11, 2011

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Public forum advice cannot be applied to all consumers and the advice given here can be confusing to consumers facing the loss of their home. Legal and Tax professional advice is a must for anyone considering a short sale. Real Estate Professionals cannot give legal advice.

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.

Realtors® are supposed to abide by the Real Estate Code of Ethics!

The Code of Ethics clearly states:

"Article 11 Realtors® 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 Realtors® 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, Realtors® 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!
4 votes Thank Flag Link Tue Jan 11, 2011
I hate to "dodge" a question but I feel it is important in this case affirm that the question does not provide enough detail to give a responsible specific answer. When the long-term legal, tax and credit implications are so critical the very specific details of the transaction would need to be framed within the question in order for anyone to attempt a responsible and well-constructed answer. The question is just too ambiguous in this case.
3 votes Thank Flag Link Tue Jan 11, 2011
Well depending on the Short sale terms from the Lender sometimes a Foreclosure is the better option (california). Think ''Deficiency''
2 votes Thank Flag Link Wed Jan 12, 2011
I would have to say a lack of information, and possibly just fear.

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
1 vote Thank Flag Link Thu Jan 13, 2011
To Alfred's point, to me this is kind of like asking "what is the number one single reason the world is flat?" Well, the world isn't flat. So why are so many people answering that it is "ignorance" or lack of information?

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.
Web Reference: http://www.SFisHOME.com
1 vote Thank Flag Link Thu Jan 13, 2011
There is no Number One Reason that a homeowner would elect to let a home go to foreclosure.
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.
Deborah Bremner
The Bremner Group at Coldwell Banker
REALTOR, 00588885, ABR, CDPE, eAgent, CSP, SFR, HRC, CRE
(O) 310-571-1364 DIRECT
(D) 818.564.6591
http://www.thebremnergroup.com/news/
1 vote Thank Flag Link Wed Jan 12, 2011
Alfred and Kathy: Thank you very much for the honorable mention. I wrote my comment below because I am concerned about the public getting mixed messages from Realtors. I am also concerned that Real Estate Agents and Brokers are going beyond their realm of expertise and will do, not only harm to clients but to themselves.

Giving advice to consumers without getting expert consultations from legal and tax provessionals can cause more lawsuits that our profession does not need.

~~~
1 vote Thank Flag Link Tue Jan 11, 2011
We can all post supplemental verbiage and continous rhetoric, but is really quite simplistic. Most people do not have the proper education and comprehension of the process.

A short sale is a real estate transaction that requires an approval from the lender - period.
It’s not some complicated legal process that requires paying an attorney. As a matter of fact, watch out for that trick!!

Now don’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. You’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 doesn’t know how to negotiate with banks, you’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 you’ll be hounded day and night by your lender. Even worse, you’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
1 vote Thank Flag Link Tue Jan 11, 2011
We see this happen all of the time, since the homeowners don't get any proceeds from a short sale anyway what I have found is they usually try to delay the move as much as possible & buy time until they know where they are going to move their family to. Remember, most homeowners in this siituation are financially straped, their credit is a mess, most are in debt & they usually have very little money. Trying to find even a rental without good credit or a security deposit & first month's rent is a challenge for many.Instead of looking at the benefits of a short sale in the long run it is overlooked by their current needs. So they ultimately wait & wait until it is too late to help them.
1 vote Thank Flag Link Tue Jan 11, 2011
The number one reason is most likely a lack of knowledge.
1 vote Thank Flag Link Tue Jan 11, 2011
I did not see anyone say that the homwowner has to qualify for the short sale, where a foreclosure will happen if you stop paying your mortgage long enough.
0 votes Thank Flag Link Fri Jan 14, 2011
Alfred Neuman- I apologize for our mistake. We are new to trulia and weren't aware we cannot support
each other on our team. Very sorry.
0 votes Thank Flag Link Thu Jan 13, 2011
Davide - glad to see you and your buddies like your answer....hurting for TU points? 5 TUs within a few minutes of posting your answer only shows you are gaming the Trulia point system. NIce job. Is that how you conduct your RE business too? Lie and cheat?

It is agents like that the RE industry needs to do without.
0 votes Thank Flag Link Thu Jan 13, 2011
It seems many here suggest that short sale is ALWAYS a better option than foreclosure.

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!
0 votes Thank Flag Link Thu Jan 13, 2011
If a homeowner received bad advice or no advice at all would be my #1 reason they would go a foreclosure route before trying a short sale.
For more buying and selling tips, please visit http://www.RochesterHomeLocator.com

Salafia Sold Team
585-279-8210
http://www.RochesterHomeLocator.com
http://www.FindRochester.com
0 votes Thank Flag Link Thu Jan 13, 2011
Alfred,

You are correct. Thank you for bring that to my attention.

Happy funding, Rudi
Web Reference: http://www.umboc.com
0 votes Thank Flag Link Thu Jan 13, 2011
Rudi - but YOU didn't even answer the question. You said yourself that you are here to proliferate or in your words, "expose" your business.

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.
0 votes Thank Flag Link Wed Jan 12, 2011
Alfred,
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
Web Reference: http://www.umboc.com
0 votes Thank Flag Link Wed Jan 12, 2011
Rudi - you want to keep it simple? Then you walk away. You're done. You file BK to ditch the 2nd mortgage creditor and you go cash only. There you have it. Simple...

There is nothing simple about short sales or for that matter, lending these days. Not sure how you feel otherwise.
0 votes Thank Flag Link Wed Jan 12, 2011
Not ignorance "Newman," it's KISS. Keep it simple stupid.
(Just answer the question. No need to feed egos or trolls.)

Happy funding, Rudi
Web Reference: http://www.umboc.com
0 votes Thank Flag Link Wed Jan 12, 2011
I believe it is because most Sellers don't understand the difference between the two or realize how much longer a foreclosure can negatively impact their credit vs. a short sale.
0 votes Thank Flag Link Wed Jan 12, 2011
Maria - you crossed your own line. In California, there is a one action law that applies to non-judicial foreclosure proceedings (for which most foreclosures go through here) that wipes out the deficiency. Again, it is a case by case situation. In the end, all sellers, informed and uniformed alike, make their decision for their own personal reasons based on their own personal situation - you cannot cover all of that here by saying "THE benefit of shortsale over foreclosure is blah, blah, blah... In fact, for some situations, that statement is grossly misleading. There is no single benefit or cost to either, both processes come with a multitude of considerations and ramifications, both long term and short term, specific to each individual seller and their situation.

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.
0 votes Thank Flag Link Wed Jan 12, 2011
I don't see this question as "ambiguous," or as "open ended" or asking how a Real Estate Professional should advise a homeowner faced with this situation.

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
Web Reference: http://www.umboc.com
0 votes Thank Flag Link Wed Jan 12, 2011
I'm 100% with Jane -- she received a "thumbs up" from me.

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. :-)
0 votes Thank Flag Link Tue Jan 11, 2011
Simple!!! lack of information,
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
Web Reference: http://Century21allstar.net
0 votes Thank Flag Link Tue Jan 11, 2011
the only answer I've heard from "sellers" is that they want a move-out check from their lender....and they have talked to foreclosure attorneys (I suspect those that no longer handle loan modifications) and they say they can get them $2000-5000 to move.

K
0 votes Thank Flag Link Tue Jan 11, 2011
Alfred and Jane are right on.....

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.
0 votes Thank Flag Link Tue Jan 11, 2011
Jane's point is absolutely made by this thread of answers by several realtors who have no clue. Don't answer these questions if you don't know what you are talking about or haven't put some decent thought into the far reaching implications of the question or your answer. Probably the most responsible answer, aside from Jane, is Dave who at least acknowledges that each situation is specific and requires case by case analysis. There is no one single reason.

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.
0 votes Thank Flag Link Tue Jan 11, 2011
#1 Stay put.

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
Web Reference: http://www.umboc.com
0 votes Thank Flag Link Tue Jan 11, 2011
*Bankruptcy.
*They have to deal with Bank of America (who said that?).
*They have 6 months to live.
0 votes Thank Flag Link Tue Jan 11, 2011
Some have tried by the lender has to slow react prior to foreclosure order date OR decline due to short sale package submitted for approval. OR many just gave up trying to work with the lender

Lynn911 Dallas Realtor & Consultant, Loan Officer, Credit Repair Advisor
The Michael Group - Dallas Business Journal Top Ranked Realtors
972-699-9111
http://www.lynn911.com
0 votes Thank Flag Link Tue Jan 11, 2011
From speaking with different people who are looking to refinance instead of short selling their property, often times the lender is not willing to work with them. There are various reasons whe a lender would not be willing to work with the homeowner from not being able to meet the debt to income requirements set forth by the lender to the lender knowing they can foreclose on the property and sell it right away and claim it as a write off with that company. Most of the time though, you try and work things out with the lender but are unfortunately dealing with people who work for the mortgage company who are inexperienced and will make their monthly salary regardless if they help you or not.
0 votes Thank Flag Link Tue Jan 11, 2011
The feeling of defeat, no options & no way out.... I know someone (who shall go nameless) who tried everything to save her home. A ex who didn't care, her loss of a great job, working menial jobs to keep it & first and formemost the bank did something I feel was unethical which prevented her from doing a short sale, and furthermore allowing it to go to auction & when a friend of hers wtnt to auction to purchase there was something that came up that he couldn't even purchase it..
0 votes Thank Flag Link Tue Jan 11, 2011
The cons of a short sale.

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.
0 votes Thank Flag Link Tue Jan 11, 2011
In response to Jane & her BK attorneys, the reason an owner would want to try for a short sale even before, during or after filing BK, is that depending on the types of loans that homeowner has, the bank could go after them in the future for a deficiency judgment if the owner lets the house go into 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.

EmilyKnell1@yahoo.com
562-430-3053 cell
Realtor Since 1996
0 votes Thank Flag Link Tue Jan 11, 2011
There isn't a number one single reason. All of these home owners have different circumstances and all of them should seek legal advice prior to making any decision on what they should and can do with their property.
0 votes Thank Flag Link Tue Jan 11, 2011
I dont know how it is in California but in Minnesota if the property goes through foreclosure the foreclosing mortgage cannot pursue (most of the time) a deficiency. Short sales sometimes wont waive their right and it would possibly make sense to let it go through foreclosure instead.
Web Reference: http://www.lennyfrolov.com
0 votes Thank Flag Link Tue Jan 11, 2011
And the # answer is:
They are in denial about the home being in foreclosure and don't know their options.

Monique Carrabba
The Carrabba Group
Keller Williams Hollywood Hills
mcarrabba@kw.com
(323) 899-290000
0 votes Thank Flag Link Tue Jan 11, 2011
In cases where there are 2 options (do something or do nothing), many opt for the latter.
Web Reference: http://www.321property.com
0 votes Thank Flag Link Tue Jan 11, 2011
There is no good reason, the main reasons are they have waited to long and yes, lack of knowledge. So many people just gove up or wait hoping it will go away. Their first call should be to their bank, whether they have any ability to pay will mean whether they will be able to save their home, or should sell it through a short sale to avoiud foreclsoure. Meeting with an agent who is well experienced in short sales is teh bets start to a short sale.

Please see my blog "5 tips to avoid foreclsoure"
0 votes Thank Flag Link Tue Jan 11, 2011
Kayvon:

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.
0 votes Thank Flag Link Tue Jan 11, 2011
Yes, I'd say ignorance that short sale is a better option is number one, although it is difficult for some to prove hardship and thus foreclosure or jingle mail is probably reason number 2 and the only option to get out of a terribly upside-down mtg if you are not in default and make good money.
0 votes Thank Flag Link Tue Jan 11, 2011
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