If you have ever had the misfortune of having your bank commence a foreclosure action against your home, you know that everyone comes ‘out of the woodwork’ under the guise of helping you. Most notably, investors and real estate agents. Each of which wants to do the same thing: convince you to ‘short sale’ your home. The investor wishes to buy your home, and the agent desires you to list it with them, both instances as a “short sale”.
A “short sale” occurs where there is no equity in the home; that is, the value of the house is supposedly less than what the homeowner owes their mortgage lender. In that case, the homeowners would not be able to sell the property in an ordinary sale, as the sale proceeds would be insufficient to pay off the mortgage and a buyer would be unable to obtain a ‘clear title”. As a result, the investor offers to buy the property, in cash, for less than its worth in “as is” condition. To avoid the costly and lengthy New York foreclosure process, the mortgage holder may agree and take the offer. The investor acquires the property at a substantial discount, and the real estate agent earns an easy commission.
The only advantage of a ‘short sale’ for homeowners is that the mortgage lender will usually hold them harmless from a deficiency, which is the difference between the property’s value and the amount the lender is owed. However, the homeowner must vacate the property before closing, typically with minimal monetary compensation.
What homeowners don’t realize is that if they file for Chapter 7 bankruptcy and receive a discharge, there is no need for a “short sale”. By law, the discharge holds them harmless from this deficiency. Unlike in a “short sale”, if the homeowner files for Chapter 7, they likely will be able to stay in their home for years, without ever having to pay their mortgage, before it is foreclosed. During this time, they will be able to save money and rebuild their credit. If you are ever in foreclosure and are unwilling or unable to save your home, think twice when approached about ‘short selling’ your home to anyone.