A short sale might be your best alternative. But they can be hard sales to close, and may not accomplish what you hope.

 

Someone Doesn’t Get Paid

In a short sale, you sell your house by “shorting”—underpaying—one or more of the lienholders, because the sale price is not enough to pay everyone in full.

In the depths of the recent real estate crash, a large percentage of home sales were short sales because the value of so many houses had fallen below what was owed on them. Even though property values have climbed in many parts of the country, there are still millions of homes “under water,” and so can only be sold in a short sale.

Why Short Sales Are Harder to Close

You can imagine that if a mortgage holder or someone else has a lien on your home and a legal right to be paid in full, it will be reluctant to take anything less than payment in full before releasing its lien. And these lienholders can include not just voluntary ones like your first and maybe second mortgage, but also judgments, income taxes, support obligations, unpaid utilities, and property taxes. Generally all lienholders must consent and release their liens, or the sale cannot occur.

Their Benefits

Beyond getting out of a house that you can’t afford, the main benefit of a successful short sale is that it avoids a foreclosure on your credit record. Although in general that is a sensible goal, a short sale is also likely detrimental on your credit record—after all you are not paying one or more of your creditors in full. Also, given how many millions of foreclosures occurred in the last 5-6 years, there is some indication that there is and will continue to be less credit record difference between a short sale and a foreclosure. Depending on the rest of your credit record, now and in the future, focusing on avoiding foreclosure may not be as important as you may think.=

Short Sales Often Do Not Come Together

Most short sales take much more effort and time to pull off than expected, so they usually take longer, and then often fail to close, putting the homeowners further behind and no better off. The reasons they often don’t work are:

  • Unhelpful and slow mortgage lenders: In a short sale usually the first mortgage holder has to give some money from the sale proceeds to a junior lienholder or two. The only reason the first mortgage holder would do that is if getting a little less out of the sale is better than going through the delay and cost of a foreclosure. Although many mortgage lenders have gotten better organized and staffed to process short sales, working with them can still be like pulling teeth.
  • Any lienholders can refuse to cooperate and kill the deal: When the pie that is too small, it’s hard to make everybody happy and cooperative. Any lienholder can refuse to take the proposed reduction in payment and jeopardize the closing.
  • The realtors and other middlemen often have the most to gain: Realtors and others in the real estate sales industry often benefit more from a short sale than you do. There are good reasons that unbiased observers—like bankruptcy judges—tend to discourage short sales.

Short Sales Can Be Dangerous

You could end up legally liable to those lienholders who were not paid in full, and could also potentially owe extra income taxes.

  • Unpaid balances on the junior mortgages and liens: You may be told that you will not be liable on debts that aren’t paid in full from the home sale, but that’s not always true. You need to be sure that the settlement documents and the applicable law in fact cut off any liability. Be careful about feeling forced to accept some remaining liability just to get the deal done.  
  • Potential tax consequences: This issue is a complicated one that can’t be covered here in adequate detail. The main point is that debt forgiveness can be treated as income subject to taxation unless you fit within one of the exceptions. Make sure you talk with an appropriate tax specialist about this before investing any time or expectations in the short sale option.  

Short sale attempts often fit two wise rules of thumb: 1) desperate actions often lead to no good, and 2) if it sounds too good to be true, it probably is.

 

If you’re under financial pressure to sell your home, first get legal advice about your options. Because you need it. And it’s free.

 

When it comes to selling your home, it is only sensible to know all your available options before you act. That’s especially true if you’d rather not sell the home, but are doing so because you believe you have no choice.

This is the last in a series of blogs about why you should get advice from a bankruptcy attorney before rushing to sell your home. Review the last several blogs to see how the bankruptcy laws can save you tremendous amounts of money and give you tools to do what would otherwise be impossible, with you house and otherwise.

So maybe there ARE some better options. You may be able to keep your home, or to sell it when it’s better for you and your family to do so.

Not Being Able to Afford an Attorney

If you are under serious pressure from creditors, you would be quite sensible to assume that you could not afford to pay for an attorney to get legal advice about your options. But that is not true, because, as you may have seen in this website and others, many attorneys provide a free consultation meeting just for that purpose.

But Isn’t There a Catch?

You may also sensibly figure that you don’t get something for nothing. So you think there’s got to be a catch. You may wonder if you’ll be forced to hire the attorney you meet with, and to do what he or she tells you to do, such as to file bankruptcy.

But the truth is that all licensed attorneys are ethically and legally bound to provide accurate legal advice to their clients. What is often misunderstood is that this is true regardless whether or not you are paying the attorney for that advice. For an attorney to advise you to take some action—such as to file a certain type of bankruptcy—if that is not in your own best interest could both jeopardize that attorney’s license to practice law and expose him to a malpractice lawsuit.

Similarly, the decision whether or not you should file bankruptcy, or pursue any other legal option, is one that an attorney cannot legally or ethically make for you. He or she can make recommendations, and show the benefits and detriments of certain options, but in the end it’s your decision. If you ever feel pushed against your will into any decision by any attorney, stop working with him or her.  

Still, How Can Attorneys Not Charge for the Consultation Meeting?

The reason that attorneys find it worthwhile to provide free initial consultations is that, because of the population of people who see bankruptcy attorneys, and the benefits provided by bankruptcy law, a certain percentage of these consultations WILL result in the client deciding to hire them, soon or later, for filing bankruptcy or some other purpose. For the attorneys it’s a combination of sensible marketing and public service.

The Good Result for You

The bottom line for you is that this gives you the opportunity to get valuable legal advice for free.

You DO need to be a careful consumer, as with any important purchase decision. Use the initial meeting to gauge whether the attorney appears knowledgeable, trustworthy, and approachable. Does the attorney take the time to understand your situation, and are your questions answered clearly? Is the attorney respectful of you? Do you feel comfortable with the attorney and others in his or her office?

If you are very comfortable with the first attorney you meet with, fine, but otherwise be prepared to take the time to meet with one or even two others. Your time is valuable, but this effort is worthwhile considering what is at stake. Besides likely being your biggest asset, your home also your biggest debt. Instead of making decisions about it in the dark, you deserve to have the best possible game plan for it.

Falling behind on property taxes is serious, but not necessarily reason to rush off and sell your home.


This continues a series of blogs about why you should get advice from a bankruptcy attorney before selling your home while under financial pressure, this one particularly on getting behind on property taxes.

Property Tax—the Superior Lien

Your local property tax agency is generally the first lienholder on your home. It comes ahead of your mortgage, and anything else like judgment and income tax liens. The property tax agency has a right to foreclose on your property, and because of its superior position on the title can foreclose out even your mortgage lender. As a result, if you fall behind on property taxes, at some point the mortgage lender will usually pay the property tax to avoid losing its lien on your property.

Most mortgage documents specifically give the mortgage lender the right to pay the property tax, to add that amount to what you must pay the mortgage lender, and to start its own foreclosure against you for not paying the property taxes. That’s true even if you are current on the mortgage payments themselves, although most people have by that time also fallen behind on their mortgage. (If you are paying your property taxes in the “escrow” portion of your monthly mortgage payment, then of course you are simultaneously falling behind both on your mortgage and property taxes.)

The Temptation to Sell

So by the time you miss a payment in property taxes you are likely in serious financial trouble, and understandably may decide that you should sell your home quickly to get any of your equity out of it. And regardless whether you have any equity, you may figure you should sell, on a short sale if necessary, to prevent the home from getting foreclosed, by either the property tax agency or your lender.

Maybe that is your only choice. But maybe not.

Bankruptcy As Medicine for a Property Tax Debt

Bankruptcy can give you some powerful medicine to deal with property taxes. A Chapter 13 “adjustment of debts” in particular can give up to five years to catch up on your property taxes, while freezing both your lender’s and property tax agency’s foreclosures throughout that time. Through your Chapter 13 plan, you could earmark payments to flow relatively quickly towards catching up on your property taxes, and to your mortgage—even ahead of any back income taxes and virtually all your other creditors. Your budget would include money to pay the ongoing property taxes (and mortgage), ahead of most or all your prior creditors. So at the end of your Chapter 13 case you would be current on your property taxes and your mortgage, and otherwise debt-free.

If instead of keeping your home you do need to sell it, Chapter 13 can enable you to do so later instead of immediately. You can get more market exposure, have time to make needed repairs, or begin your sale during a better time of year. Or you may even be able to delay selling for several years until you get to a better time to do so for your family’s needs, or perhaps until the property’s value has increased.

Sell Only If, and When, It’s Right to Do So

There’s no question that falling behind in property taxes is not good, and may well be a sign that you cannot keep the property long term. But that depends on all your circumstances. Given the power of bankruptcy—both to buy time before selling and maybe to save you from needing to sell at all—it only makes sense to find out what bankruptcy may be able to do for you. 

If under financial pressure to sell your home, bankruptcy law can surprise you with ways to keep your home or sell it on your own schedule.

 

When it comes to selling your home, it is only sensible to know all your available options before you act.

This is the third in a series of four blogs about why you should get advice from a bankruptcy attorney before rushing to sell your home. It is so easy to make false assumptions about your options, and feel like you have to act in a certain way because of those assumptions. This often happens when you are under financial pressure, you think you need to act quickly, and the last thing on your mind is to question your assumptions. Well, maybe there ARE some better options. Consider the following two situations:

1.  If You Need to Sell to Avoid a Foreclosure:

You likely know that filing a bankruptcy case stops a foreclosure. But that’s just the beginning. Bankruptcy law provides a wealth of tools for helping you keep your home, or to buy extra months or even years before needing to sell. If you have a second mortgage, you may be able to avoid paying most of it, potentially saving you tens or even hundreds of thousands of dollars. If you have a judgment lien, or tax or support lien, if you are behind on property taxes, or many months behind on your mortgage payment, in all these situations bankruptcy may be able to help in ways better than you thought possible. You may even be able to take advantage of property values that are finally climbing in most markets, by staying in your home permanently or long enough for it to regain some of its value.

The reality is that every homeowner who is facing a foreclosure has a unique set of circumstances. You need and deserve an individual analysis. Bankruptcy can often give you many different combinations for solving your personal home challenges, so you need to find out what will best fit your own goals.

2. If You Need to Pay off Your Ex-Spouse:

Divorce is so often so traumatic. Even in relatively non-antagonistic ones, emotions can cloud your judgment and memory. Your legal obligations about your property and your debts can get fuzzy.

So you may understand that your divorce decree says you are required to sell the marital home to pay off your ex-spouse. But that obligation might be changed through bankruptcy law. Most obligations that you owe arising from a divorce are not written off by a bankruptcy. But some are. And even those that are not written off, bankruptcy can affect the timing of payment or favor you in other ways.

Practically speaking, even if during your divorce you got some advice about how a possible future bankruptcy filing would affect the terms of your divorce, you may not remember that advice, or not remember it accurately. You had other things crowding your mind. You may not have even gotten correct advice, or complete advice, about all your options.  Many—maybe even most—divorce attorneys do not know bankruptcy law well enough to give you the complete picture. Plus circumstances could have changed in the meantime. So now, before you sell your home to pay off your ex-spouse, get current and thorough advice about your options from a competent bankruptcy attorney.

 

Please come back next week for the final blog in this series. Thank you for visiting. 

Get advice if 1) you can’t afford your house payments, 2) it has an income tax lien, or 3) your mortgage modification was rejected.

 

The last blog gave three reasons why you should get advice from a bankruptcy attorney before selling your home. Here are three more. They will help you make better decisions about your home, and could save you lots of money.  

1.  If you think you can’t afford the house payments:   

You may really need to sell your home if it’s more house than you need, or its cost is way beyond your present financial abilities.

But, if you would greatly prefer to keep your home, and wish there was a way to do so, you may be able to. You may be able to reduce your home’s monthly cost, and do so even if you are under threat of foreclosure. Or you may be able to afford your present monthly cost, or a reduced cost, if no longer had to pay all or most of your other debts.

Last week’s blog gave you some ways to reduce the debts on the house itself (second mortgage lien “stripping” and judgment lien “voidance”), and next week’s will give some more.

As for reducing or getting rid of the rest of your debt, even if you don’t like the idea of filing bankruptcy you should find out your options. Especially with home prices starting to rise now in most parts of the country, now could well be the best time to use some of the extraordinary tools of bankruptcy. For example, if your home is “underwater” (you owe more than it’s worth), with a second mortgage “stripping” you can take advantage of the last half-decade’s loss of equity in your home, which likely you would not be able to do in a year or two if values continue to rise.

2.  If you have income tax debt:   

If you owe back income taxes, these taxes may have already attached to your home’s title through the recording of a tax lien. Or that may happen soon. With that tax lien or fear of one arriving, you would understandably feel some pressure—especially when combined with financial pressures on the home from other sources—to sell your home to pay those taxes.

But bankruptcy can often help you deal with your tax debts, often in surprisingly beneficial ways. Some income taxes—usually if they are old enough—can be forever “discharged” (legally written off) altogether. And those that can’t be discharged would likely be able to be paid much less than they would outside bankruptcy, through huge savings in interest and penalties, and other possible advantages. Tax liens in particular can be handled much better within bankruptcy. And most importantly, you and your home can be protected throughout the time the taxes are taken care of, taking away much of the pressure for you to sell your home.

So if income tax debts or tax liens are part of why you feel you must sell your home, first find out how bankruptcy would handle them.

3.  If your mortgage modification application was rejected:   

Although arguably the processing of mortgage modifications has improved over the last couple of years, they often continue to be a terribly frustrating procedure to go through. There are definitely times when mortgage modification requests are rejected because the homeowner failed to fully complete the application or the mortgage lender did not process it accurately. It may not even be clear why the modification was not approved. After going through this challenging process without a reduction in your mortgage payments, understandably you may well feel like you have no choice but to sell your home because you can’t afford it.

However, sometimes a bankruptcy filing—either Chapter 7 or 13, depending on the circumstances—can help get a mortgage modification approved. Reducing your debts through bankruptcy provides you more resources to put into your house, generally making you a better candidate for mortgage modification.

Conclusion

Deciding whether to sell your home of course involves many factors—personal, financial, and legal. Based on these last two blogs you can see that there are tools to help you keep your home—either for a limited period of time or permanently—that you likely were not aware of earlier. And these are just a few tools (with a few more next week), and they are just being discussed in general terms. Consider how much sense it would make to have your own unique situation be carefully reviewed by a competent attorney, resulting in a game plan designed to meet your personal needs and goals. You may be pleasantly surprised by the options and advantages that would apply to you. Let us help you make an informed and wise choice about your home. 

If you’re hurting financially, getting advice from a bankruptcy attorney before you sell your home could save you lots of money. 

 

Here’s how:

1.  Get rid of judgment liens, instead of pay them.

If you have been sued by a creditor, or by anybody, and you didn’t resolve and pay the obligation, most likely a judgment was entered against you.. You might not even realize or remember if this has happened to you. It may have been many years ago, potentially even before you bought your home.

Even if you did deal with it at the time and settle the matter, and are making payments under an agreement with the creditor, most likely a judgment was still entered against you in case you didn’t end up paying as agreed.

Either way, the judgment is very likely a lien against your home. That lien amount is often substantially more than the amount you thought you owed the creditor, because of extra costs that the creditor stacks onto the basic debt—for court filing fees, attorney fees, late charges, and continuously accruing interest.

Even if you haven’t been sued by a creditor, if you are behind on payments a creditor may sue you in the near future. That creditor could get a judgment against you and place a lien on your home’s title before the closing of your intended home sale.

In all these situations, the judgment lien generally has to be paid in full before the house sale can close. If, as usual, the judgment is paid out of the proceeds of the sale, this reduces the amount you receive. Or the lien could reduce the amount of money available to go to more important debts, such as taxes, child or spousal support.

If there are not enough sale proceeds to pay the judgment, you will either have to pay the full judgment amount out of your pocket, or at least some discounted amount to get the creditor to release the lien. To the extent that you don’t pay it in full, you would likely continue owing the balance. Finally, if you don’t have enough to pay off the judgment creditor and it won’t settle under reasonable terms, that could kill your sale.

In contrast, either a Chapter 7 “straight bankruptcy” or Chapter 13 “adjustment of debts” can often “avoid”—permanently get rid of—that judgment lien and “discharge”—legally write off—the debt that resulted in the judgment. That would allow you to sell the home without paying anything on that debt.

2.  “Strip” a second mortgage.

Chapter 13 (but not Chapter 7) can often allow you to “strip” your second (or third) mortgage from the title of your home, resulting in you paying little or even nothing on that mortgage. This can save you tens of thousands of dollars, or even hundreds of thousands of dollars, especially when considering the interest savings over the length of time that you would own your home.

Chapter 13 is able to do this by changing the debt secured by the mortgage to an unsecured one, and then lumping that debt in with all your other unsecured creditors, and paying them only as much as you are able to over a 3-to-5-year period. This only works if your home is worth no more than the balance on the FIRST mortgage (plus the balance on any property taxes or other “senior” liens). In this situation, the law effectively acknowledges that all of your home’s value is eaten up by liens that are legally superior to the second mortgage, leaving no equity at all for that second mortgage, making it an unsecured debt.

At the end of your Chapter 13 case, having paid what your budget says you can afford to all of your unsecured debts, including the debt formerly secured by the second mortgage, the remaining balances on all of your unsecured debts, including the second mortgage one, would be permanently written off. You end up with your home completely free and clear of that mortgage, and much less underwater.

3.  Buy time for better offers.

Filing bankruptcy can buy more time for you to sell your house. It can buy a little extra time or even potentially a couple more years to sell.

A home sold under time pressure will almost never get you a good price. You will much more likely receive the maximum sale price after buyers have had plenty of time to view the property and make offers.

If you feel under immediate time pressure to sell because of a threatened or pending foreclosure, or because of other creditor problems, Chapter 7 can usually buy at least an extra few weeks, often an extra few months, and sometimes even longer, depending on the aggressiveness of your mortgage holder.

A Chapter 13 case could buy you many months or even a few years, depending on the circumstances. This may be very important for family and personal reasons. Also, considering that in many real estate markets the property values are steadily increasing, the additional time may even allow you to regain some of the property value lost in the “Great Recession.”

These advantages in selling your home—advantages in money and timing—are only possible if you meet with a competent debtor-creditor attorney and formulate an appropriate strategy, BEFORE you decide to sell the home.

The next blog will give you more ways that bankruptcy can give you huge advantages with your home. These can completely change whether or not you should sell your home, if you sell when you should sell, and who would get paid from the sale proceeds.

 

Besides avoiding a foreclosure and its hit on your credit record, you may have other sensible reasons for looking into a short sale of your home. Let’s consider those other reasons.

In my last blog I showed how a short sale may be harder to pull off than expected, and how they can be dangerous if you do not get advice from knowledgeable professionals looking out for your interests. Simply put, you should not assume that any particular solution is the right one without knowing all your options. And that means asking whether the reasons you are pursuing one option might or might not actually be better served through a different option.

So here are some sensible reasons to consider doing a short sale:

1. You can’t afford the house anymore and so believe you have no choice but to get out.

If your income has been cut or the mortgage payments have gone up so that you cannot keep up those payments, and yet you can’t sell your house in the normal fashion because it’s worth less than the mortgage balances, then a short sale may be a good way to escape the house and its debt.

But maybe you have important reasons to stay in your home. Your family may benefit from staying for deep personal reasons—such as not leaving your kids’ school district or maintaining family stability. If you leave this home it may be a long time before you would have the financial means to buy again. So there may be ways to lower the cost of keeping your home. A mortgage modification may now be more available than in the last few years because of the recent large mortgage fraud settlement with the major banks, and other improved programs. A Chapter 13 case in bankruptcy court may enable you to eliminate or drastically reduce a second mortgage balance, and either eliminate, reduce, or delay payments on other liens on the house. And either a Chapter 7 or 13 could reduce or eliminate other debts so that you could better afford to pay the home obligations.

2. You’ve heard that bankruptcy does not allow “cram downs” of mortgages on your home. So you see no way out of your second mortgage other than getting them at least a partial payment through a short sale in return for writing off the rest of that debt.

You’ve been doing your homework if you understand that mortgages secured only by your primary residence cannot be “crammed down,” reduced in bankruptcy to the value of that residence, unlike lots of other kids of secured debts.

But there’s a big exception, one that keeps getting bigger as home values continue to decline in many areas. If your home is worth less than the balance of your first mortgage, so that there is no equity at all in your home for the second mortgage, then through a Chapter 13 case you can “strip” this lien off your home. That means that your second mortgage debt can be paid very little—sometimes even nothing—during your 3-to-5 year Chapter 13 case, and then written off completely. This not only saves you from paying the 2nd mortgage payment from then on, it reduces your debt on your home forever, making hanging onto your home economically more sensible. If this second mortgage strip applies to your situation, then you will pay less each month for a home with less debt on it.

3. You may be induced to do a short sale not just because of your voluntary mortgage debts on your home, but because of various other usually involuntary ones which have attached to your home’s title, like one or more tax, judgment, support, utility, or construction liens.

You may have found out that your title is saddled with other obligations, and in fact you may well be under a great deal of pressure to pay one or more of these obligations. The IRS and support enforcement agencies can be especially aggressive. So you would understandably feel that you have no choice but to sell your home to get that aggressive creditor paid. And since you have no equity in your home, you can only sell it on a short sale. But the problem is that the more lienholders you have, the more challenging a short sale becomes. And even if it does succeed, the troublesome lienholder may agree to sign off for less than the balance, leaving you still being pursued by it.

I can’t cover here how a Chapter 7 or Chapter 13 case would deal with each of these kinds of lienholders. That’s a many-blog discussion, and would depend on each person’s circumstances. But often you would have options that would give you more control over your home and over your financial life than would happen in a short sale. Considering what is at your stake, it certainly makes sense to consult an attorney who is ethically bound to explain all the options in terms of your own goals and best interests.

Real property is unique in the eyes of the court, therefore, specific performance typically arises in these types of transactions. Specific performance is asking the court to force the opposing party into a contract that obligates them to honor the contract at issue, rather than awarding money damages. For example, a buyer can force a reluctant seller to perform the purchase sale agreement.

 

 

These are the requirements for the lawsuit:

  • Terms must be certain: Essential factors include identifying: (1) the seller, (2) the buyer, (3) the price to be paid, (4) the time and manner of payment, and (5) the property to be transferred.
  • The buyer paid adequate consideration and the contract was just.
  • The plaintiff must have performed the agreement.
  • The defendant must have breached the agreement.
  • A money award must be inadequate.

When a party wins a Specific Performance lawsuit, the court will order the sale of the property at the price and terms agreed upon. Moreover, the victorious party will also be entitled to a judgment for the rents and profits from the time he was entitled to the conveyance under the contract.

When a purchase and sale deal starts to go wrong, seek legal advice. While the other party may have breached the agreement, the wrong response (i.e., refusing to perform your obligations) can destroy your chances for success in the lawsuit.

For the full story, please visit: http://www.thenichereport.com/articles/the-5-steps-to-prosecute-a-successful-lawsuit-for-specific-performance/

A short sale of your home is sometimes your best alternative. But short sales often do not successfully close, and even when they do you must be vigilant to avoid problems later.

In a short sale, a house is sold by “shorting”—underpaying—one or more of the lenders (or “lienholders”), because the value of the house, and thus the purchase price offered by the reasonable buyer, is not enough to pay everyone in full. The liens can include not just voluntary ones such as the first and second mortgage, but also judgments, income taxes, support obligations, unpaid utilities, and property taxes. All lienholders must consent and release their liens, or the sale cannot occur, because the title needs to be clear for the new buyer to be in full ownership.

The important thing to know is that unless you get a full settlement or satisfaction in writing you may face continuing liability to any creditor who was not paid in full, even after the sale!  This is why it is important to work with competent and knowledgeable professionals in dealing with any short sale situation.

The primary benefit of a short sale is that it avoids a foreclosure on the homeowner’s credit record—that is, it does so IF the short sale is successful. Generally, the most common current underwriting criteria will prevent a borrower from qualifying for a new home loan for up to 7 years after a foreclosure, but only 2-4 years after a short sale.  (However, given the present economic climate, in the future there may be less credit record difference between a short sale and a foreclosure.)  This credit record difference is often the primary reason borrowers will try to do a short sale, instead of just letting a property go to foreclosure.

Short sales can have problems, however.

First, they can be much harder to pull off than expected, and can take much longer than expected. It is also possible they fail to close, typically due to servicer/lender rejection of reasonable purchase offers, which can be very frustrating to all parties involved.  Short sales may also fail due to:

  • Lack of incentive of the Servicer:  Many mortgage companies are not well organized or staffed to handle short sale negotiations.  Borrowers and agents generally must work through a servicing company, whose financial incentives may well not encourage short sales. So they may drag their heels, and can even sabotage your efforts, even after months of submitting documents and reasonable offers.  This causes many would-be buyers to get frustrated and walk away from the deal rather than keep trying in the face of such adversity and frustration.  LAck of responsiveness of servicers is a major cause of short sale failures.
  • Since all lienholders must agree, any one of them can kill the deal: To accomplish a short sale, usually the first mortgage holder has to give up some money to a junior lienholder or two. The benefit to the first mortgage holder is that getting a little less out of the sale is better than incurring the substantial costs and delay of foreclosure.  However, they may not be willing to allow enough money to a junior to entice all parties to allow the short sale to be completed.  Everybody wants their “fair share” of a pie that is too small to make everybody happy.  So just when you think you have a deal among the main players , someone else crawls out of the woodwork demanding a payment and jeopardizing the closing. They all have a legal claim against the property, and can delay or undo the whole deal.
  • Closing and other costs can be too high: Sometimes after adding up all the closing costs and realtor fees, there may not be a high enough “net proceed” number to entice the lender to do the deal.  Of course, the realtors and their negotiating agents are doing a lion’s share of the work in any short sale process, and must be adequately compensated by the lender at closing.  This is how a short sale can be done with little or no out-of-pocket cost to the borrower.  Sometimes the banks have a hard time with this concept and will lead to a sale failure by their rejection of reasonable market offers.  This just means they will actually lose more money in the long run, and it is frustrating for everyone involved, particularly the realtors and others who put substantial time and efforts into the process only to have it fail due to a recalcitrant or incompetent servicing agent.

Short sales can be dangerous if you are not well-informed:

  • Potential liability from unpaid balances on the junior mortgages and liens: Although you may be told that you will not be liable, you need to be sure that the acceptance and/or settlement documents and the applicable law in fact cut off any financial liability to you following the sale. Also be aware that sometimes in the midst of the negotiations, especially if a junior lienholder is playing tough, and the closing has been delayed for a long time, you may be feel forced to accept some liability in order for the closing to occur.  This may or may not be in your best interest, and you may wish to consult with an attorney to discuss all the factors and options – be sure to consult with someone who is unbiased and who will advise as to your interests alone (unlike realtor or others who may only get paid upon sale).
  • Potential tax consequences: This issue deserves a whole blog by itself. The key principle is that debt forgiveness can be treated as income subject to taxation unless you fit within one of the exceptions. Make sure you talk with an appropriate tax specialist or attorney about this before investing any time or expectations in the short sale option.  Most residential borrowers will have an exception, but not always!

Bankruptcy gives you a wide range of tools that can help you keep your home or sell it on your own schedule. Many of these tools provide surprising advantages for you. Especially when it comes to your home, know your options before you make decisions.

This is the last of a series of three blogs covering ten reasons why you should get advice from a bankruptcy attorney before selling your home. Here are the final four of those reasons.

1.  Want to Pay off Ex-Spouse: After going through a divorce, you are often required to sell the marital home to pay off your ex-spouse. In most circumstances, debts that you owe from a divorce are not written off by a bankruptcy. But sometimes they are. And even with debts that are not written off, bankruptcy can affect the timing of payment or favor you in other ways. Divorce is often such a traumatic process. Even if during the divorce you received advice about how a possible future bankruptcy filing would affect the terms of your divorce, understandably you may not remember that advice. And frankly, many divorce attorneys do not understand bankruptcy enough to give thorough advice about it. You do not want to base decisions about your home without advice about your options, or, often worse, with incomplete advice. So now, before you sell your home to pay off your ex-spouse, get that advice, from a competent bankruptcy attorney.

2.  Need to Pay off Property Taxes, Homeowners’ Association Dues: Creditors with the strongest rights against you and your home include your county or similar governmental entity which collects your property taxes, and your homeowners’ association. So you may feel powerless in dealing with them if you fall behind on paying them, especially if they are threatening to foreclose on your home. Bankruptcy can give you a leg up on fighting them, and so find out about this before you are pushed into selling your home to pay them off.

3.  Selling to Avoid a Foreclosure: You’ve likely heard that the filing of a bankruptcy stops a foreclosure. And you probably know that Chapter 7 and Chapter 13 each deal with foreclosures differently. The truth is that every homeowner who is facing a foreclosure has a unique set of circumstances, and requires and deserves an individual analysis. Bankruptcy gives you many different combinations for addressing the issues you’re facing. Only by being informed about and thoroughly understanding those options can you make the right choices about whether and when to sell your home, and how all these fit into your whole financial picture.

4.  Can’t Afford an Attorney: If you’re selling your home because you believe it’s the best way to deal with your debts, and you can’t afford to pay an attorney to get legal advice about that decision, consider the following. A decision about your home is likely about your biggest asset and your biggest debts. I assume you agree that if you could get solid, practical advice about that, you would do so. Since I do not charge for my initial consultation, I can give you that advice. Let me help you create the best possible game plan for dealing with your home.