Ramifications to short sale

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Latest post Thu, Jun 14 2007 2:10 PM by CS26. 6 replies.
  • Wed, Jun 13 2007 8:07 PM

    • Jenn03
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    • Joined on Wed, Jun 13 2007
    • Posts 2

    Question [=?] Ramifications to short sale

    My question is regarding the short sale of our home in Indiana. We sold our home in April of 2007 in a short sale to avoid foreclosure. Everything seemed to go well until we are now receiving calls and letters demanding the deficient amount of the loan. We are not in a situation to where we are able to pay that, hence the reason for the short sale itself. When I spoke to the collection rep for the mortgage company, he made us aware that there was a small clause in one of the many papers we signed that they may do this. We feel like we were not well informed by the mortgage company nor the real estate agent that this may happen. We were made to feel that once the short sale was completed, we would be in the clear and was basically told this would be so by the real estate agent. If we would have known, we would have just let it foreclose. We felt like we were trying to do the right thing by trying to sell the property for as much as we could and not let it go to foreclosure. Now we are fearing that wages may be garnished, etc., which we cannot afford. If it would have been pointed out to us by either the mortgage company or the real estate agent that this would be the end result, we would have never accepted the terms of the sale. I guess my question now is what can we do from here if anything?
  • Wed, Jun 13 2007 10:09 PM In reply to

    re: Ramifications to short sale

    "We feel like we were not well informed by the mortgage company nor the real estate agent that this may happen. We were made to feel that once the short sale was completed, we would be in the clear and was basically told this would be so by the real estate agent."

    Sounds like 1) you didn't do your homework and 2) you erroneously relied on people who weren't obligated to tell you the consequences of a short sale.

    Unfortunately, there's not much you can do about it now, except maybe bankruptcy.
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  • Thu, Jun 14 2007 3:32 AM In reply to

    Feedback [*=*] re: Ramifications to short sale

    “We feel like we were not well informed by the mortgage company nor the real estate agent that this may happen. We were made to feel that once the short sale was completed, we would be in the clear and was basically told this would be so by the real estate agent.”

    The lender is the one with whom you had the loan contract. Thus, remarks made by the real estate agent really don't help you—his or her job is simply selling the property, not representing the mortgage company with regard to your mortgage liability. If the mortgage company made false or misleading statements to you to induce you into the short sale, then perhaps you might have a fraud or misrepresentation claim against the mortgage company. My guess is, though, that the mortgage company never came right out and told you your debt would be satisfied. What they likely told you was that it would avoid the negative consequences of a foreclosure, which is true. If you made the assumption from statements like that that your wouldn't owe them anything after the short sale, then that problem falls on you. Did you ever ask the mortgage company directly if you’d owe anything after the sale?

    Your biggest problem, really, is that the documents involved in the short sale apparently specifically said they could come after the balance. Did you read those documents before signing them? You should always take the time to read those documents and understand them, or take them to an attorney for an explanation of what the contract says. Had you done that here, you’d have known what the deal was.

    Note that a foreclosure would have also resulted in you still owing the balance of the loan. But a foreclosure would have (1) probably ended up with a lower sale price on the home, leaving you with a bigger deficiency to pay, (2) left a negative notation of the foreclosure on your credit report, and (3) ended up adding more to your liability for the attorneys fees and other costs for the lender to do the foreclosure. So, given that outcome under foreclosure, would you still have let it go to foreclosure rather than short-sale had you known you’d owe the deficiency? My guess is that you probably would not have done that. Bankruptcy might have been your better option, though there is no way to know for sure without knowing your entire financial situation.
  • Thu, Jun 14 2007 8:27 AM In reply to

    • vakyin
      Consumer
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    • Joined on Fri, Oct 6 2006
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    re: Ramifications to short sale

    Short sales are only good for the buyer...

  • Thu, Jun 14 2007 2:05 PM In reply to

    • CS26
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    • Joined on Tue, Jul 4 2006
    • Posts 27

    re: Ramifications to short sale

    This just does not sound right. There is a lot of mortgage fraud going on right now and you should be finding out which state agency is handling mortgage fraud investigations where you live. It could be the state attorney general but it could also be the state's US Attorney/Dept of Justice.

    From what I understand, in a short sale the lender "forgives" a portion of the loan not recovered in sale, and the IRS considers the forgiven portion income and taxes you. You don't want to pay twice, so you might consider talking to someone at the IRS, too.

    http://www.washingtonpost.com/wp-dyn/content/article/2007/05/04/AR2007050400904.html Article about short sales and IRS.

    http://www.mortgagefraudblog.com/index.php/weblog/permalink/six_charged_in_arizona_pre_foreclosure_flipping_scheme/ Article about a real estate scheme that included "short sales." Click the home page to read more, maybe there is something newer or more relevant.
  • Thu, Jun 14 2007 2:10 PM In reply to

    • CS26
    • Not Ranked
    • Joined on Tue, Jul 4 2006
    • Posts 27

    Another link

    If you google short sales fraud you get a lot of stuff about foreclosure rescue scams. Was your situation like the description here: http://www.azcentral.com/arizonarepublic/news/articles/0422foreclosure-rescue0422.html

    ?
  • Thu, Jun 14 2007 3:36 PM In reply to

    re: Ramifications to short sale

    "We were made to feel that once the short sale was completed, we would be in the clear and was basically told this would be so by the real estate agent."

    Not sure what you mean by "made to feel". Unless you got something in writing that they would forgive the rest of the loan if you paid them X, or can prove what you were "made to feel", you're probably out of luck.

    You probably should have talked with a local real estate attorney who is familiar with foreclosure laws in Indiana. Whether or not you would have still owed the balance if a foreclosure sale didn't cover the lender's loan depends on state law.
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