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The Truth About Short Sales According To Wall Street Journal
Today, April 30, 2009, the Wall Street Journal published an article on Short Sales. The Journal report is consistent with items previously posted on this Blog. Foremost, the Journal warned that most lenders accepting short sales are not waiving personal liability or deficiency judgments. These lenders require the homeowner to sign a new promissory note for the short amount. I previously posted my opinion that short sales are a trap for homeowners. The buyer, lender, and real estate agent each gain from a short sale, whereas the homeowner is left with the same liability he would face if he let the property go to foreclosure. Actually, the homeowner is in worse shape- in the case of a foreclosure the lender would have to prove the property’s fair market value in order to pursue a deficiency judgment. Proof of value takes time and money invested in attorneys fees and appraisals. When the borrower agrees to a short sale and signs a new note the borrower has liquidated value, that is, he has consented to a property value equal to the sale amount. Short sales still affect your credit, and even if the credit impact is less than foreclosure, you should consider whether the credit benefit is worth the liability. The Journal tells of one homeowner who walked away from a short sale ready to close when the bank insisted he sign a promissory note for the forgiven value.
There is another article in today’s Journal about short sale which makes interesting reading for distressed homeowners. A Short Sale May Not Mean You're Home Free - WSJ.com. This article explains the potential income consequences from a short sale. Its a relatively clear and comprehensive explanation of taxation issues in mortgage debt foregiveness. I learned new things about the tax consequences of foreclosure. Read the article before you consider foreclosure or short sale, and always talk with your CPA to make sure you understand your situation. A bank may not chase you to collect a deficiency judgment, but the Internal Revenue Service will likely pursue collection of income taxes triggered by debt foregiveness.
posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida
April 30, 2009 in Mortgage Foreclosure | Permalink
Comments
I am uncertain if the short sells applies to investment properties. Can someone help.
Posted by: Julian | Dec 23, 2009 5:00:11 PM
obviously the best way to find out is to contact the homeowner's mortgage co. and find out what its willing to do for a short-sale. Most banks in this day in age are willing to do just about anything to keep bad debts off their books, and the rules change daily due to the economy.
Posted by: Tim/n/Florida | Nov 5, 2009 4:13:37 AM
This is a joke. I have facilitated THOUSANDS of short sales around the country. Most states the lenders CAN'T legally ask that anything be repaid, as they are not deficiency states. Even in deficiency states like Florida, the lenders don't as that a penny be repaid 75% of the time! Also, there are no "taxation issues" if you are short selling your primairy residence!
Posted by: Short Sale Expert | Oct 6, 2009 10:06:11 PM
no, because in a short sale you are agreeing to the deficenecy, u actually have to sign to it, and if u dont sign the bank will not go through with the short sale, even if you go to f/c or your investor ( suhc as fnma) writes off the loss you will still get a 1099c and will have to apy taxes on the short amount and when the short amount is 100 thousand your gonna be paying some big money, the reason why short sales arent a good idea nowadays is because they werent designed for this market, they were designed when u sold ur home in an economy that was stagnant and just couldnt cover closing fees or maybe your proprty went down SLIGHTLY in value, not 40-60%, the amount of creidt reporting is minimally different than a F/C you would be stupid to do a short sale on ur propert nowadays, trust me i work for a bank
Posted by: john walling | Jun 26, 2009 7:48:11 PM
What about the Debt Releif Act of 2007? Doesn't that protect homeowners who short their home from further collections?
http://www.irs.gov/individuals/article/0,,id=179414,00.html
Posted by: Kevin | May 8, 2009 3:41:20 PM
Asset Protection and an Asset Protection plan are things that we all as individuals need.
Very good information on this site here:
Asset Protection Information
and
Asset Protection Information System
Posted by: Asset Protection Information | May 2, 2009 1:23:09 PM
