Foreclosure in Sacramento>Question Details

Shilly, Home Owner in Sacramento, CA

Should we short sale or file bankruptcy?

Asked by Shilly, Sacramento, CA Tue Jun 7, 2011

We have a first and second on our home and owe 265k. The house is valued at 145 presently, possibly lower as it's on a busy street and this is going by comps of nearby listings and recent sales.
Because the 2nd is a line of credit, we've been told filing bankruptcy would be necessary in the event of foreclosing. We want to know if it's realistic that a short sale would happen. We don't want to waste a lot of time and then still end up foreclosing.

Help the community by answering this question:


You should definitely consult an accountant for the tax implications of either decision as well as an attorney to see how each option would affect you and then make a decision that best fits your specific situation. If you do decide to do a short sale then you should use a real estate agent that specializes in short sales.
1 vote Thank Flag Link Tue Jun 7, 2011
You should talk to an Attorney about that.
My job as a Real Estate agent, to make sure that you are making an informed decision
if you were to do Short Sale on your home.
Everybody will have diferent case, and Bank / Lender will handle it on case by case situation.

So consult with your a Real Estate attorney, or Bankcrupcy Attorney before making your decision.
There are consequences in Short Sale, as well in doing Bankcruptcy.

Vischa Savitri
916-290 3368
Lyon Real Estate
1 vote Thank Flag Link Tue Jun 7, 2011
I am a certified short sale specialist. As you have seen below, Realtors try to stay within their area of expertise and not offer you legal or tax advice. Having said that, your second mortgage changes everything. A foreclosure will squash the first mortgage but not the second. The second lien holder may still be entitled to funds. A short sale negotiating can take care of the second loan. Bankruptcy is an all encompassing effect when sometimes lesser action is needed. If you are in overall bad financial health then it may be wise to file bankruptcy. But, in some cases, why would you clobber your credit when it's just your house payment that is the problem? So, if you think you will recover from dumping your house, I would say to short sale.
0 votes Thank Flag Link Thu Jun 6, 2013
You most likely have resolved your situation but in case you haven't I thought I would post another response. I am a Bankruptcy attorney and also a real estate broker and short sale expert. I have had clients who filed bankruptcy and a year later received a property tax bill only to find out that the bank had not yet foreclosed. So in the chance that you haven't fully resolved your issues you can give me a call to discuss...

If you did successfully resolve your issues I hope you are on the road to recovery and planning on buying another house as soon as possible. It really is a good time to buy...

Ted Greene
Web Reference:
0 votes Thank Flag Link Thu Jun 6, 2013
You've obviously had a LOAD of responses and, with all due respect to all respondents, please concentrate on listening to licensed agents here in California. If this is your primary residence we have laws that protect you during a short sale,( which are successful in a very high percentage of situations). Work with a Certified Distressed Property Expert (CDPE) or SFR designated realtor, and one who can demonstrate to you that they are very skilled in negotiations with your lender. There are a number that have responded here that I know have those qualifications. We also have referrals to attorneys, and accountants that are knowledgable on the issues you are facing. (The answers they will provide you are based on your individual circumstances.) Our brokerage provides you legal resources for free as part of our service but the fee is normally nominal (about $200) for others on the market.

But as everyone has said, foreclosure has been the least attractive option in most cases, with the most detrimental effects. (and yes if the home is foreclosed the second lien is still attached to you unless you file BK...but if you do a short sale all liens are released as part of the negotiation.) I hope we all have helped, rather than confused you.
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0 votes Thank Flag Link Sun Jun 12, 2011
Shilly, I would recommend hiring an attorney and licensed real estate agent in your area. Speak with both of them and gather information. With this information you can make an educated decision. Good Luck.
Dawn Lewis 619-981-3917
0 votes Thank Flag Link Sun Jun 12, 2011
It is very hard on people both financially as well as emotionally when they find themselves in this situation. Remembering how happy you were the day you closed on your property, who could predict your home value would plummet and your dream home would be giving you absolute nightmares now! Take heart you are not alone. You don't mention who gave you the advice to declare bankruptcy. If it wasn't a real estate attorney, Certified Public Accountant, or Licensed Financial Advisor, close your ears! This is the time when you need to spend the money to get the advice of someone who knows the laws in your state! You may say, "I can't afford that kind of advice". I say you can't afford NOT to get their advice! This is too important and the wrong move will follow you the rest of your life. They are skilled to mitigate the long term burden this will cause you. Call your local Legal Aide or County Legal Services department and ask for a recommendation. Many times the lawyers have an arrangement where they will meet with you on a consultation for as little as $25. Don't get hooked up with companies that advertise they will repair your credit. They can't and will bill you handsomely!
When it comes to list your property for sale, list with an agent who has a certification as a Short Sale or Foreclosure agent. Call your local Board Of Realtors and ask for names of agents that have that designation. If you work with the right people your long term outcome will be much better! Good luck!
0 votes Thank Flag Link Sun Jun 12, 2011
Probably bankruptcy, however you really do need to consult with a real estate attorney as well as you financial adviser or accountant. Most people talk about short sales as if their easy()their not) that just because you feel you should be able to do a short sale it will be approved (most are not) and that assuming you actually are approved and allowed to short sale, that it's over, (it's not)

Sellers will be carefully vetted, and are expected to contribute whatever they can to minimize the amount the bank is being asked to lose. If you have 401K's CD, retirement funds, SEP or Roth IRA, collections or art, wine, guns, jewelry etc, all are considered as assets and are subject to liquidation with the funds turned over to the lenders. Secondly you'll get issued a 1099 for the amount the bank is short as if you earned it as income and will be expected to pay the IRS and State taxes due on this amount. Finally without an attorney you will almost inevitably be given a deficiency judgment for the amount owed. I do not know the laws in California, but here in North Carolina deficiency judgments last for 10 years and can be renewed indefinitely.

Sorry you find yourself in the situation you are, but don't compound your troubles, go sit down for 30-60 minutes with an attorney who specializes in this and explore your options.
0 votes Thank Flag Link Sat Jun 11, 2011
I suggest attempting a short sale; if you don't try, you'll never truly know... what if it does get approved, as many do?

Worst case... you don't short sale and take another route, and you can show you tried your best.

Good Luck.
0 votes Thank Flag Link Sat Jun 11, 2011
Definitely talk to an attorney about your situation as soon as possible. If you can't make your payments on any of the mortgages foreclosure will happen if you do nothing. A short sale is normally a better option than foreclosure for your credit. Any short sale figure would have to be acceptable to the lender or possibly lenders in order to work. Some issues you want to consider would require that you talk to a CPA about tax implications, and your attorney about a possible deficiency judgment that your lenders may want if you don't satisfy you're obligation with them. As agents our job is to market your property to find a buyer. We are not attorneys or tax professionals and they are an important part of helping you make the right decision.

All the best,
Gary Geer
0 votes Thank Flag Link Fri Jun 10, 2011
I agree, your best bet is to speak to an attorney for legal advise.
0 votes Thank Flag Link Thu Jun 9, 2011
I would consult an attorney right away. Usually, a short sale would be the best bet.
0 votes Thank Flag Link Thu Jun 9, 2011
(If I was not clear).... Correct SB931 addresses the first. So,if you have a 2nd what do you do? You need to negotiate the 2nd. How do you do that... by a short sale process.

If a person does not choose a short sale, then what?

If a person lets 1st go into foreclosure they still have a 2nd that they MAY still be liable for. Pending the type of 2nd it still needs to be negoitated or the borrow continue to make the payments. If a person and their attorney feel it necessary to file Bk then that could be an option.

Shilly, your situation first must be evaluated by quailified tax advisor and real estate or BK attorney. Much information is needed to understand your situation.

One question you asked, "is it realistic that a short sale can happen". Yes, many people are getting short sales approved. Most important do you have a hardship? Can you still make the payments? Don't waste time thinking about it, talk to professionals that can give you good advise. You really need to understand ALL your options before moving forward and where do you see yourself in 5 yrs.

Keller Williams brokerage is not associated with the government, and our service is not approved by the government, and our service is not approved by the government or your lender.
0 votes Thank Flag Link Wed Jun 8, 2011
Hi Silly,
If you can afford it, just keep the house. Good Luck
0 votes Thank Flag Link Wed Jun 8, 2011
Don't let a Realtor give you legal advice. Hire me. I partner with a law firm who can give you legal advice. And if short sale is not in that advice, we don't move forward.
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0 votes Thank Flag Link Wed Jun 8, 2011
Yes, you can short sale this house. A short sale would keep bankruptcy off your credit. I would be happy to explain the process to you. Feel free to give me a call anytime.

Eli Givoni, Director
Short Sale Department, LLC
Serving all 50 states

MARS Disclosure for General Commercial Communications
Short Sale Department, LLC is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit.
0 votes Thank Flag Link Wed Jun 8, 2011
Hi Shilly. More detailed info is needed about your situation. How much do you owe on the first and second? Are you current or behind on your mortgage? Who are the lenders that are involved? Without knowing the details of your situation, nobody can render an opinion on what your chances of getting a short sale approved by all lien holder are. I am a licensed CA attorney and real estate broker and would be happy to provide you with a consultation. You can e-mail me through Trulia.
0 votes Thank Flag Link Tue Jun 7, 2011
Ute Ferdig -…, Real Estate Pro in New Castle, DE
You mentioned that because your 2nd is a line of credit that you were told by someone that BK would be necessary in the event of a foreclosure. That may be true. A lot of direct questions need to be asked regarding your situation and every situation and bank are different.

However, we have a California law SB931 which defines the 1st and 2nd liens. The 2nd needs to be negotiated with the bank to remove any deficiency and or any promissory notes. That can be done through a short sale process. If a person has an unsuccessful or unfavorable outcome on the 2nd your BK attorney/attorney will have other alternatives. That's why it is important to seek tax and legal advise as soon as possible in the foreclosure and short sale process.

I have a real estate attorney that I know that can sit down with you and your agent to discuss your situation. He may tell you some people may need to file BK, some may need to let it go to foreclosure, but just because your neighbor choose to BK doesn't mean you need to.

If you would like a copy of the SB931 feel free to email me: psmith

Keller Williams brokerage is not associated with the government, and our service is not approved by the government, and our service is not approved by the government or your lender.
0 votes Thank Flag Link Tue Jun 7, 2011
Hi Shilly, I commend you for taking the time to research your options! Though as real estate agents we cannot give you a definite answer, we can answer questions about the different processes, time frames, etc.

In your particular situation, you are not limited to one or the other. If you have other outstanding debts that you are unable to pay, filing bankruptcy may help. If you are wanting to stay in your home as long as possible bankruptcy and/or a short sale can help keep you there longer (or at least give you more control over the situation). If you are worried about deficiency balances for your 1st and/or 2nd loan, it can often be negotiated into the terms of your short sale approval.

Is it realistic that a short sale will happen? The quick answer is yes. If you work with a Realtor who knows their way through the process, can price a home accurately, and who works with a professional negotiator, it can be done. Short sales are very common these days, and have become easier. Not to say that it isn't a much longer process than a traditional sale - but it does give you back some control versus allowing the home to go into foreclosure.

If you'd like to discuss in more depth your particular situation, don't hesitate to contact me :)
Web Reference:
0 votes Thank Flag Link Tue Jun 7, 2011
I am a short sale specialist in Arizona. A short sale removes the largest expense from someone's debt. It will not help if they are in overall debt.
When I first meet with short sale clients, I ask them to look into the future a bit. I ask them to consider life in 6 months with a smaller house payment. I ask them if things will be easy or will they still be struggling. If they tell me that they will be fine, then a short sale may be the answer. If they tell me that they will still be struggling, I tell them that bankruptcy may be the answer. Then, I send them to a real estate attorney.
Also, a 2nd loan,line of credit or not, can be negotiated in a short sale.
0 votes Thank Flag Link Tue Jun 7, 2011
I am an attorney that specializes in situations exactly like yours. I would be happy to give you a free consultation. I can analyze your situation and explain Please call me at 916.442.6400... talk to you soon... TED
0 votes Thank Flag Link Tue Jun 7, 2011
Hi Shilly,

Besides the value of your property decreasing do you have an actual hardship? If you don't you do not qualify for a Short Sale.

Before you do anything talk to your attorney and tax professional. They will best advise you.

Good Luck,
Zisis Sakellariou
0 votes Thank Flag Link Tue Jun 7, 2011
Hello Shilly-

Elizabeth is correct about investigating the HAFA qualification. If you don't already have an agent, it could
be helpful for you to have a Realtor with a CDPE designation to do an assessment of the property value
and your financials in addition to your speaking with a real estate attorney. A CDPE (Certified Distressed Property Expert) is uniquely trained for these situations. This could go along way toward giving you a better picture for the near future.

All the best to you-
Teresa Voudouris
(916) 300-7028
Davis & Davis Associates

Davis & Davis is not associated with the government, nor is our service approved by your lender or the government. Lender approval would be needed.
0 votes Thank Flag Link Tue Jun 7, 2011
The great news for you is that you have options...many of them.

Please contact a real estate agent who has experience with Short Sales.
We can provide you with a list of real estate attorneys, CPA, and bankruptcy attorneys
so you can fully understand your obligations.

Bankruptcy will not eliminate the tax consequences associated with a foreclosure.

Call / Email if you have questions or there is anything we can help to clarify.

Michele Peterson
Keller Williams Realty
(916) 743-5934
CA DRE 01872795
0 votes Thank Flag Link Tue Jun 7, 2011
The isn't really an either/or question. A bankruptcy delays the short sale/ foreclosure process but does not address all of the factors involved. Collateralized loans, like a car loan or home mortgage, while the debt may be wiped off of your credit report, still allow the lienholder to exercise their rights for repossession of their property. In the case of a home, it's in the manner of a foreclosure.

The answer lies with two attorneys- a real estate attorney specializing in short sales and foreclosures, and a bankruptcy attorney. Once those options are understood I strongly recommend you talking to your accountant to understand the tax consequences related to the direction you are choosing to pursue. A new offering at The Galster Group provides you access to legal resources that can answer the questions that you have to make the right decision specific to you.

First, speak with a realtor who specializes in short sales, ensuring that you qualify as having a hardship that the lender will accept and that your finances qualify you for a short sale,( whether it be through the HAFA program or another program offerd by your lender). Then speak to attorneys, and your CPA. That information will help you make an informed decision specific to your situation.

Good Luck!
Web Reference:
0 votes Thank Flag Link Tue Jun 7, 2011
Shilly-Talking to a tax advisor and real estate attorney is really good advice. Looking into a HAFA short sale is really good advice. Another route to consider is trying to complete the short sale and obtaining an approval letter with wording from your lenders--especially the 2nd lien holder--that states the debt while not paid in full is satisfied to the point that there will be no further collection activity on the account (or similar version there of).

It may or may not be possible to obtain if the 2nd is a line of credit. It varies lender to lender.

I believe bankruptcy and foreclosures should be the last choice of a seller underwater. Do you have a legitimate hardship, or do you just want out of the house?
Web Reference:
0 votes Thank Flag Link Tue Jun 7, 2011
Only by sitting down and talking with an attorney and your financial advisor, and looking at the whole picture of your situation can you be advised. Every short sale is unique and it would be a disservice to you to give an answer without knowing your story.

Good luck, keep working with someone to get the answers you need face to face.
0 votes Thank Flag Link Tue Jun 7, 2011
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