5 Things Your Bankruptcy Lawyer Won’t Tell You About a Short Sale
A bankruptcy lawyer in Sacramento who dabbles in Sacramento short sales once shared with me that being a bankruptcy lawyer is like representing the bottom of the barrel as far as clientele is concerned — but I suspect what the lawyer really meant was the speciality itself carries its own stigma. I’m fairly certain bankruptcy clients come from all walks of life and all income levels. If bankruptcy lawyers are wrong about that, it might make one wonder what else they could be wrong about. Here are things that a bankruptcy lawyer is probably loathe to disclose to potential clients contemplating a short sale.
#1) You Should Probably Do Your Short Sale First and the Bankruptcy Second. However, if you go that route, you might not need the services of a bankruptcy lawyer, and I won’t get paid. Most of the debt accumulated by stressed out borrowers is mortgage related. In California, a short sale for your residence not only wipes out the debt but it wipes out personal liability and short sale taxes on the canceled debt, both federal and state.
#2) Your Mortgage Loans Don’t Vanish After a Bankruptcy. Unlike a foreclosure, in which the home reverts to the first lender and any subsequent loans are released, a bankruptcy leaves all of those loans still in the public records and still filed against the borrower, which can prevent the borrower from obtaining another loan to buy a home. Ever.
#3) Your Mortgage Lenders Will be Tougher to Deal With After the Bankruptcy. If you thought your lenders were relentless before the bankruptcy, wait until it is over and you then try to short sale. For starters, your financial situation will be improved and you might not even qualify for the short sale. Lenders are not required to grant a short sale. If that hard-money second lender was initially unreasonable, just wait, the collection department will be even more harsh and difficult after the bankruptcy. There will be no cash for a short sale for you.
#4) I Have Little Experience in Bankruptcy Law and Won’t Personally Handle Your Case. Lawyers have it tough making a living, just like anybody else who is self employed, and when they fail at one specialty, some will turn to bankruptcy law. But one thing doesn’t change, and that is the paralegal will most likely prepare and process your paperwork. You will talk to your lawyer when you write a check and when the bankruptcy has closed, not during the process.
#5) Your Real Estate Agent Knows More About Selling Homes and Cares More About You More Than I Do. Veteran real estate agents often are empathetic because it comes with the territory. On the other hand, bankruptcy lawyers do not as a rule sell short sales and have little to no experience negotiating with short sale banks much less fully understand the process of selling homes in Sacramento. A home that has been abandoned during bankruptcy proceedings becomes much more difficult to sell 6 months to a year down the road, if it will sell at all. HOA dues pile up, property taxes remain unpaid, utility bills accumulate and often the home is vandalized — none of which the bank will authorize for payment from the proceeds. A buyer won’t pay it, either.
Note: If the investor for that loan is Fannie Mae or Freddie Mac, it’s just about impossible to get the same sales price as a home that is fixed up, shining and ready for occupancy, but trust this Sacramento short sale agent, that’s exactly what the investor will still demand after a borrower completes bankruptcy.
Sellers who are considering bankruptcy would be wise to talk to an independent legal counsel, a CPA, and most likely wait until after the short sale before filing bankruptcy. As always, this agent does not give legal nor tax advice.
For more about Bankruptcy vs. Short Sale, from About.com
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