A couple of times a year clients who are surrendering a house in a bankruptcy call me wanting to know if the lender will still do a short sale on the property. Almost always they have been approached by some third party who tells them how much he wants their house, but it is such a wonderful place that he is just sure it will sell for more than he can manage at Sheriff’s Sale. Won’t they please arrange a short sale with their lender so he can be sure and get the house?
Ok, so the proposal is, I think your house is worth more than I am willing to pay, so I want you to run interference with the mortgage company to help me get it for less money than the mortgage company would probably wind up with at Sheriff’s Sale.
Hmmmm, colluding with a 3rd party to try and create a scenario where your mortgage company ends up getting less from their collateral than they would otherwise be entitled to. Why is it that these people all think this is such a wonderful idea?
The answer to that question is actually pretty simple. The people who propose these schemes know that losing a house in foreclosure has an incredible emotional toll. Even people who have already filed for Bankruptcy will go to great lengths to feel like they didn’t really lose their home in a foreclosure. In most cases these people are so desperate to feel better about their situation that I cannot convince them that simply helping this nice man out isn’t the right thing to do.
So, what do I tell them? Simple. I simply remind them that this negotiated short sale will be post-petition. If the buyer were to decide after the fact that there was some defect in the property that hadn’t been properly disclosed, the client would still be liable for those damages; because the actions took place after their bankruptcy was filed. Oh, I also tell them that they will have to get permission from the Court for the sale, they might have to go to Court and see THE JUDGE, and I will charge them an additional fee for doing the extra work. If the first two arguments don’t work, that third one always does.
It is taking calls like these that remind me how emotional foreclosure really is, and how desperate people are to think that if they just help this nice man who called, then they aren’t really the kind of person who loses a house in foreclosure. Being reminded of that occasionally makes me a better lawyer.
Since only the arreage has been added to the Ch 13, the homeowner has to make both the normal mortgage payment and the Ch 13 payment. If you are against a short sale for properties in foreclosure, what do you recommend to someone who simply can no longer afford both payments, e.g., after a divorce? Do you not think it would be better to short sale the property rather than letting it foreclose?
Tell me one scenario where a short sale is absolutely better and safer. Don’t forget to consider the tax consequences and the possible liability arising out of the sale to the buyer. Now, then, tell me realistically in my jurisdiction what is the downside to my client if he simply sits back and allows a foreclosure?
What if you have to file to stop a sale, but after claims come in the payments are too high? If you withdrawn or dismiss case. Can you then look to sell?
You should discuss that with your Bankruptcy lawyer. Your decision will be effected by your State law and by decisions you made in your bankruptcy.