Short Sale of your New York home
By: Daniel Gershburg, Esq.
A client came into my office recently to discuss the possibility of “shortselling” her home. She was advised of this option by a “mortgage specialist” that she had consulted with. The mortgage “specialist” advised her that she could sell her home for less than what the mortgage she owed was. Furthermore, the remaining balance of the mortgage would be forgiven by the lender and she would be able to live in the house, albeit with a new owner, until such time as she had the funds to repurchase the house. The description is insane.
A short sale is basically a way for the banks to weigh whether they will lose more money by allowing the borrower to sell the home for less than what is owed on the mortgage, or by means of foreclosure. In other words, If Bank A lends $100,000 to Borrower A and Borrower A knows she cannot now pay the mortgage, will Bank A lose more by allowing Borrower A to sell the property for $90,000 or by foreclosing on the property and paying fees, transaction costs, etc.
This type of transaction is increasingly discussed in the credit crisis and real estate mess we are now involved in, but it offers little to no benefit for the person considering selling his/her home in a short sale. First and foremost, many banks are not necessarily too keen on short sales. Many of them are now inundated with requests for short sales due to what is transpiring in the marketplace. If they cannot give you a timely answer, your proposed purchaser may very well walk away. If they don’t walk away, the bank can still deny the short sale, wasting time and money on your part.
Secondly, the purchaser of your home, if the short sale is in fact approved, has absolutely no obligation to keep you in the home. If I purchased a home for less than the market value I would not want someone living there. It simply does not make sense. That person now has the title and can do whatever they see fit with the home.
Finally, this does, I repeat, DOES affect your credit in a negative way. Is it treated better than a foreclosure would be on your credit report? Yes. But it nevertheless does impact your score in a negative way and a notation about a pre-foreclosure sale will be placed on your credit report.
The conclusion is this: If you can sell your home for less than its worth and you can get the bank to agree not to pursue you for the balance owed (by the way whatever you receive from the sale of the home goes directly to the bank that has issued the mortgage-so you make nothing) AND you do not wish to file for Bankruptcy, then go ahead and do it. Make sure you have an experienced attorney representing you during the process. On the other hand, if you feel as if this will benefit you, will not harm your credit score, and you’ll be able to stay in the home, then think again.
Here are a few articles discussing short selling for your enjoyment:
http://homebuying.about.com/od/4closureshortsales/a/shortsalebasics.htm
http://www.realestatejournal.com/columnists/housetalk/20080214-fletcher.html
http://www.bankrate.com/brm/news/real-estate/20070928_home_short_sale_a1.asp
Daniel Gershburg Esq., is a Bankruptcy & Real Estate attorney serving clients in Brooklyn, Queens, Manhattan, Staten Island, Long Island and Westchester. Mr. Gershburg has given lectures and presentations to both attorneys and the community at large surrounding Bankruptcy and financial advocacy in the New York City area. He is a proud member of the National Association of Consumer Advocates. Currently he is working on his first book giving practical advice about repairing troubled credit and how to improve credit post Bankruptcy