Short Sale vs Foreclosure

Updated on July 08, 2009
C.B. asks from Phoenix, AZ
10 answers

I recently requested a short sale to the bank tgaty loan has defaulted. The idea was to attempt to not have a foreclosure on my credit. I just got a form saying that if they accept the short sale offer, we have to pay the difference. Is this corect? Any suggestions or advice, please share. I never thouht I'd be in this position. Perfect credit my entire life! Should I be getting a lawyer?

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D.F.

answers from Boston on

HI C.,

Listen to Kelly!!! and here is a website to learn more of what you are about to do... good luck!

http://homebuying.about.com/od/shortsale/Short_Sale.htm

D.

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K.R.

answers from Lewiston on

Hi C., I am a Realtor in Maine, if you are successful in getting a shortsale offer, yes you are responsible for the difference. If you can not pay it (and usually people can't) I believe you get a judgement against you for the balance and then have to claim it as income on your taxes the following year, please consult an accountant and attorney. Short sales can be done but take an inordinant amount of time and work on the Realtors and homeowners part so please also get a good agent who has done shortsales as they are very difficult to put together, I'm in the middle of my 3rd right now and it's a nightmare. Good Luck!

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G.C.

answers from Boston on

C., I work as a real estate paralegal... and NO you do not have to pay the difference on a short sale. What happens is you place the house on the market and the bank has to approve the offer made on the house and take that less costs as a payoff of your mortgage. So for example, if you owe $280k.. but you get an offer for $200k and the bank approves the offer, you payoff your mortgage for the $200k less the costs you have to pay at closing. and that's it. Nothing more is due from you to the bank.

DEFINITELY talk to a real estate attorney though and make sure everything is done by the book, as real estate brokers are helpful but tend to only watch out for their commission, and that's it.

Good luck!
G.

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M.T.

answers from Providence on

First off, I am a MA real estate attorney and have experience in short sales. Long story short, you should absolutely have an attorney. Not just to try and protect you as much as possible, but also to be the "middleman" with the bank because the short sale process is, to put it mildly, a major pain.

As far as the shortage, my experience is that the banks accept the short sale as full satisfaction of the loan and do not pursue the shortage. The may have you sign a promissory note for an unsecure portion (have seen as low as $1000 and as high as $35,000), but that is your choice to sign or not sign. I have had instances where people have refused to sign and the bank has still gone forward with the short sale. However, I have also had instances where the bank said sign the note or we will not approve. But the majority of the time the bank just accepts the payment and writes off the rest. There is no cut and dry answer because every bank and every deal is different.

They will still send you a tax form because technically that write off is "income" to you because its money you don't have to pay, but if you sell before the end of hte year you don't have to pay taxes on it (part of one of the stimulus packages past last year)

If you have any other questions, feel free to contact me at [email protected]____.com. I won't lie to you - this is going to effect your credit no matter what. But the thinking is that it doesn't hurt as much as a foreclosure and you will probably be able to buy another home in a shorter period of time.

Good luck!

M.

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C.C.

answers from Springfield on

C.,

I, too, never thought that I'd be in that situation last year when I had to sell my house because I got a job in a new community that required me to move. Yes, I walked away with a loan for the balance, which was $8,000. Yes, you will also need a lawyer because you always want to have a lawyer when you are buying or selling property. The only saving grace is that my loss was tax-deductible. My credit union was kind, though, and where a personal loan usually comes with a 15% interest rate, they gave it to me at 5% for 60 months. It sucks. Everyone I've ever known in my life made money off of their real estate transactions and I lost money. The loan officer told me, though, that the loan for the balance ultimately was a better situation than if they wrote off the balance, which would show negatively on my credit. Besides, the loan is an opportunity to continue to prove your credit-worthiness. Good luck - and remember, this has everything to do with the economy - our houses would have been worth more than when we purchased them if the timing had been better.

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D.N.

answers from Boston on

C.,

Your agent should also be able to help you with this. After a sale price is reached, the bank will first try to get the difference from you, but will often forgive the balance. If they do, that will affect your credit - but not as much as a foreclosure.

Yes, you should have an attorney, but since you are in RI, you will need one who is licensed there. Make sure they have experience handling short sales.

Good luck to you- you aren't alone!

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C.D.

answers from Boston on

Banks can make the borrower pay the difference in the sale price and mortgage amount. Sometimes they forgive the amount but other times they make the borrower pay it back. It depends on the bank, the situation, the mortgage terms etc.

It is definitely best to deal with an attorney who does short sale work and also consult your accountant to determine how it will affect your tax return (a forgiven portion of a mortgage can sometimes be viewed as income).

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R.B.

answers from Providence on

Have you considered a housing counselor? They can give you advice as well on all of your options. There is also the Hope Hotline that has housing counselors available 24/7 (that number is 888-995-HOPE) or you can visit the site at http://www.995hope.org/

You can also find a housing counselor in your area here: http://www.findaforeclosurecounselor.org/network/nfmc_loo...

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B.A.

answers from Boston on

Unless you really want to get rid of your house there is so much help available to prevent foreclosures (and short sales). From everything I learned, the short sale was not significantly more palatable than the foreclosure.
I have been working with my mortgage company and foreclosure prevention specialists and will probably be able to refinance. I would be happy to describe what I have done if you are interested and want to contact me.

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K.C.

answers from Boston on

Hi C.,

I am so sorry to hear your situation! I think you should get a lawyer. I am a real estate agent and I have seen a few short sales. The seller didn't have to pay the difference to the bank in the cases I saw.

I recommend this lawyer. He has worked with the NH Real Estate Commission for years, giving legislative updates to the real estate instructors every year. He knows his stuff and is very dilligent.

Good Luck!

Christopher R. Nicolopoulos, Esq.
PretiFlaherty
57 North Main Street
P.O. Box 1318
Concord, NH 03302-1318
###-###-####
###-###-#### (direct)
###-###-#### (cell)
[email protected]____.com (e-mail)

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