Loan Modification

Short Sales In Florida Part I

By Carmen Dellutri

One of the most common topics that I am asked about on a daily basis is the short sale:  Can I short sale my property? Doesn’t it look better on my credit report to short sale the property?  Can I short sell the property to a relative?  What is the difference between a short sale and a deed in lieu of foreclosure?  Should I short sale a property or surrender it in a bankruptcy?

Simply put:  A short sale must be in your financial best interest for it to make sense.  Why else would you go through all of the effort to sell the property?  If you look at it from all sides, you will see that there are many players in the transaction who all stand to make money, except the seller who is willingly entering into the negotiation without full knowledge of all the issues.  So, why do it?  Great Question.  The pressure to do a short sale can be tremendous.  

What is a short sale?  A short sale is when you sell your home to a third party purchaser for less than what you owe on the loan.  I know that sounds simple, and yes, there is much more to it than that.  But, for this blog, let’s keep it simple.  For example,  let’s say you own a home that you purchased two years ago for $300,000.00 (typical in Southwest Florida).  Today, that same house is now worth $120,000.00, and your neighbor’s house down the street just sold for $69,000.00 after foreclosure.  So, you are under quite a bit of pressure to unload this property, but you do not want to be left holding the bag on a deficiency.

Who are the players?  In order to have a short sale, you need three main players.  First, you need a short seller (i.e. someone willing to roll the dice and sell their home for less than they owe on the loan).  Second, you need a lender who is willing to accept less on the debt than what they are owed and are willing to provide clear title to the property despite not being completely satisfied.  Third, you need a purchaser.  Let’s call the purchaser the bargain hunter.  Fourth, although not completely necessary, you may have a realtor or two in the mix.  They stand to profit on any sale, despite how it turns out for the seller or the buyer.  They will work their butts off to try and make this sale work.  Some realtors have even gotten into the tax business and advise seller about the tax ramifications of doing a short sale.  (Yes, this is a very bad practice, and my clients have reported even more egregious stories to me.  Sellers beware of what you are being told).

The Realtor stands to make a commission which could be several thousand dollars or more.  In this economy, I’m sure that money is already spent before the commission check is printed.  So, please be wary if the realtor is pushing you to close the deal.  I’ve even had clients who were threatened with a lawsuit if they backed out at the last minute.  Please do not misconstrue this message, not all realtors are snakes, but some are.  I am fortunate to know many excellent realtors who are the leaders in their fields, do an excellent job for their clients and do not cross the line when it comes to providing tax or legal advice.  Let’s speak frankly, there are some bad bananas in every bunch.  I could say the same for Lawyers, and I commonly do.  But that is not the topic of this blog.

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Full post as published by Mortgage Law Network on May 27, 2009 (boomark / email).