Short Sale Doesn't Equal Forgiven Debt.

Real Estate Broker/Owner with Liberty House Realty LLC

I came across a blog on another networking site and got into a bit of a debate as to what exactly a Short Sale is and isn't.

I need to explain that I am a HRC (Housing Retention Consultant) with Titanium and I have the RDCPro (REO Default Certified Professional) Designation through lastly, I am working on a Short Sale training program I hope to present to NAR (National Association of Realtors) for acceptance in their Continuing Education Program. In other words, I kind of know what I am talking about, just a bit.

Ok, so back on topic, what is a Short Sale?

Per Wikipedia a Short Sale is defined as...,

"a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold."

The above definition is absolutely correct however, I have heard, read, and had described to me that a Short Sale is more than as described above by Wikipedia.

Some define a Short Sale as...,

a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold and, where the bank forgives the remaining debt.

Let me be very clear, a Short Sale is no promise that a bank will forgive the remaining debt!

I wrote a blog back on 9/8/08 on that highlighted the use of unsecured promissory notes by banks to secure future payment of the remaining debt before they offer an approval for the short sale. In that blog, I made it clear that some banks are using the unsecured promissory note while others aren't.

In closing, a Short Sale approval doesn't guarantee a forgiven debt so be careful when you discuss what a Short Sale is so that you don't set an expectation that you simply can't fulfill.


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Edith Schreiber
Luxury Homes, Move Up Buyers, 1st Time Homebuyers, New Construction - Frisco, TX
Dallas Area Real Estate

Thanks !

I understand that even though the debt may not be forgiven, as part of one of the numerous bailouts of late (I have lost track), that amount no longer becomes part of a 1099 (as income)....which I understand it once was.

Keep up the good work keeping us straight! :0)

Edith Schreiber - Dallas, Texas 

May 21, 2009 10:56 AM #1
Mirela Monte
Buyers' Choice Realty - North Myrtle Beach, SC
Myrtle Beach Real Estate

Jesus:  Very true, very true! 

Several of the banks are now asking for these promissory notes. 

Several of my Sellers who are upside down are just bringing lots of money to closing and stopping the bleeding, instead of having the hassle and blemish of a short sale.

I give my short sale clients every possible scenario the deal might have.  The road is never quite straight or obvious...

May 21, 2009 11:00 AM #2
Konnie Mac McCarthy
MacNificent Properties, LLC - Cobb Island, MD
Broker/Owner - VA & MD "Time To Get A Move On!"

Does anyone know if someone signs one of these promisory notes...if there is still a ding to their credit....afterall, they are paying it back.. ??

May 21, 2009 12:34 PM #3
Jim Valentine
RE/MAX Realty Affiliates - Gardnerville, NV

Jesse - You're right - its not automatic.  We've had lenders ask for a note and lost the sale.  Usually we can negotiate total forgiveness, but each situation is unique unto itself.

May 22, 2009 03:11 AM #4
AJ Heidmann ~ CRS
McEnearney Associates, Inc. - Alexandria, VA
YOUR Alexandria & Arlington, VA Real Estate Expert

Here in Virginia, I believe the lender has 6-7 years to go after any deficiency on the short sale, unless it is specifically stated in the short sale that the bank will not seek repayment for the shortfall.  There are thousands of people who may open their mail over the coming years to hear that the bank, or the collection agency they sold it to for $0.20 on the dollar, wants the money that is owed 

May 23, 2009 09:32 AM #5
Matthew Naumann
Exit Realty Charleston Group - Goose Creek, SC
Goose Creek, SC Real Estate Agent


Great Post.  Do you know which major banks choosing to do unsecured promisory notes or not?

Thanks for sharing,

Matt Naumann

May 25, 2009 02:24 AM #6
Mirela Monte
Buyers' Choice Realty - North Myrtle Beach, SC
Myrtle Beach Real Estate

I hope this discussion will continue.  This is very important information. 

This post is now featured on the Optimist Group.

May 29, 2009 04:42 PM #7
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