Sorry But That’s Not a Short Sale!
A few days ago I had a conversation with a realtor friend about the state of the housing market. Inevitably, the subject of short sales came up. My friend said that while overall sales continue to be slow, he has seen quite a few “short sales” recently. This peeked my interest and we got to talking. Apparently his wife (also a realtor) had helped negotiate numerous ”short sales” where the seller took back a note for the difference between the sale price of the home and the outstanding mortgage balance. I stopped my friend, “Mark, that’s not a short sale.” He reacted with a surprised look. “what do you mean that’s not a short sale?”
The whole concept of a short sale is predicated on waiver of at least some portion of your mortgage. It’s a SHORT sale, meaning the sale price is short of what you’ve guaranteed on the mortgage. Let’s be clear, you don’t owe money after a true short sale. In exchange for bringing a buyer to the table capable of taking out much of the existing mortgage (either through a new source of financing or cash) your lender agrees to release you from the remaining portion of the debt. That’s a short sale. A true short sale involves some degree of debt forgiveness. Any other arrangement, while potentially helpful to a struggling homeowner, is not a short sale. My friend was describing a situation where a bank is willing to allow a closing to proceed as long as the borrower agrees to pay back any left over mortgage debt. In this scenario, the house sells for less than what is owed on the mortgage and the difference becomes the amount the borrower will now make payments on. If $300,000 is owed on the mortgage and the house sells for $270,000, the seller will now owe the bank $30,000. Funny, that doesn’t sound like a short sale, it sounds much more like a foreclosure sale with a corresponding deficiency judgment.
In light of the fact that a short sale will do almost as much damage to your credit as a foreclosure and requires considerably more effort, why go to the trouble unless you’re gaining some debt forgiveness? Isn’t owing the bank after you no longer own your home a common characteristic of a foreclosure proceeding?
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I’ve decided to file for bankruptcy, do I need to go through with my short sale?
