Does a Short Sale Make Sense?

31 Aug Does a Short Sale Make Sense?

As explained in my post on short sales, these can be a good method for getting a home sold. But do they make sense? Certainly for the realtor involved, who won’t get a commission if the house isn’t sold, they make a lot of sense.

For the mortgage company in first position they make sense because usually that company doesn’t have to reduce the amount they are paid. For the second mortgage, such a sale might make sense if they are going to get wiped out by a pending foreclosure anyway.

But does it make sense for the homeowner? Well, sometimes, but rarely. It sounds good on paper the home gets sold and foreclosure is avoided. But, the homeowner won’t get any money out of the deal – it will all go to the mortgage companies and for the costs of sale. Then, they may get hit with an action for a deficiency of what wasn’t paid.

And, believe it or not, if the homeowner isn’t sued for a deficiency, the IRS can/likely will tax them on the amount of the loan that was shorted or forgiven. One solution is to file for bankruptcy. So, what did they gain by the short sale?

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Douglas Jacobs is a California bankruptcy attorney and partner in the Chico law firm of Jacobs, Anderson, Potter & Chaplin. Since 1988, Mr. Jacobs has taught Constitutional law and Debtor-Creditor/Bankruptcy law at the Cal Northern School of Law. He has served as Dean of Students since 1994. He is a frequent lecturer on the subject of consumer bankruptcy law, and has spoken at both state and national levels.
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