Short Sale may not be the benefit home owner’s with falling values are promised.
Taxes are going up, insurance is going up, properties values are dropping, why not take the short sale and let the bank take the loss? Sound like the answer doesn’t it, you walk from the home you either over mortgaged, over paid for, or turned into a credit card with easy home equity loans. Trouble is, the bank may be in this with you but they are not going to write the check and let you just go on your merry way. At best they will take the price your buyer offers, subtract your loan and take the loss. This may be $100,000 or more. But don’t think it is over at this point. This $100,000 is money you owe the bank. This is now an unsecured debt but it is still a debt that you owe. Your options are, convince the bank you are too broke to pay, sign a new note on the new loan to pay the bank the shortfall, file bankruptcy. Not only is this not a very pretty picture it will get worse. Your credit will be destroyed, you income could be garnished, you may be forced to liquidate some of your assets to lower the banks loss and when you think you have it all figured out, the IRS can treat the difference between the amount you owed and the amount the bank lost as regular income. What options do you have?
I had a customer tell me he talked with the bank about a short sale on an investment property that he was having trouble renting or selling. He had an offer on the property at a $200,000 loss so he asked the bank to take the money and the property. He was shocked when the bank asked to see his tax returns, bank statements, financial statements, etc. He couldn’t imagine why they needed to know his financial condition. He never thought if the bank loses $200,000 they would just say, “Oh well, it happens”. Banks don’t do that. If the banks lose another 100 billion dollars on short sales this year where do you think that money is coming from? You guessed it, your favorite Uncle Sam will have to bail them out some more. Come on folks, we are all in this together. There are financial consultants hawking get rich schemes with short sales. In my opinion, this is what we always called bottom feeding. The sudden offer that comes to my customer, after talking with his real estate agent about options if he can’t sell the property soon has a sudden miraculous ending. The real estate agent knows an investor that is willing to make an offer and bail by customer out. Nothing is said about what happens to the seller after the short sale, nothing is even really negociated about price. Bottom line is you have a may have a problem your white knight. I don’t mean to say the real estate agent is conspiring against you. I don’t mean to say the “Investor” is conspiring against you. And I don’t mean to say the bank to conspiring against you. What I am saying is you need to use the Short Sale Option as just that, an option. Your bank will negotiate with you better if they think you are negotiating with them in good faith. If you have no other options then the Short Sale may be your answer just be prepared to have your credit destroyed, your assets levied, and consider filing bankruptcy. That is the ugly truth about Short Sales. If you do have some assets worth protecting, maybe you should lower the rent for a year or two while allowing prices to stabilize and values to go back up. It will take years for the housing market to rebound but all markets swing like a pendulum and we are on the down swing. But it will turn and rebound. We as a country created this monster by thinking prices could only go up and up and up. Well guess what we were wrong. But giving up, selling the house to speculators and expecting the banks to bail us out is not realistic either. A recession is when your neighbor is out of work. A depression is when you are out of work. You neighbor is out of work and you may be soon. But all the negative talk, doom and gloom, etc is not going to correct it. There are programs available to help you out of the problem. There is no program that will work for everyone. But there are programs out there that may help you. For instance the FHA Refinance loan will allow you to finance up to 97.75% of the appraisal value of your home at a lower fixed rate loan. Maybe this is not enough to pay off the balance on your existing loan and maybe this might be a place to ask the bank to reduce the balance to allow you to pay them as much as possible without the short sale, foreclosure, bankruptcy process.
Do you have a Short Sale horror story to share, email me at clyde@clyderowland.com