The homeowner should be in a better position after electing a Pre-foreclosure solution. A Short sale improperly negotiated with the bank or potential purchaser may leave the homeowner in a worse position. Short sales are very fact dependent, they are not a one size fits all solution.
A short sale is just one of the options an upside down or nearly upside down homeowner should consider as alternative to foreclosure. In light of the fact many attempts at a short sale fail, a homeowner must be ready to go with plan B and even plan C.
When first contacting a bank a homeowner or their representative might ask for a short sale packet. However, some banks are wisely calling it a Pre-foreclosure packet. Pre-foreclosure solutions should include the full set of tools a homeowner may consider. In my opinion none of the tools should be employed without consulting with an attorney. Of course some of the most important tools do require a Real Estate Professional to price and sell the property.
Here is part of a good pre-foreclosure toolbox.
Legal Solutions as Leverage
1. Does the homeowner have any legal remedies which might be available to use as leverage against the lender?
For instance might there be evidence of Predatory Lending? Was the homeowner given a new interest rate right before the closing? Might a attorney explain to the bank that the current workout is better than the one a court might force a bank to accept in a bankruptcy situation.
Keeping the Home
2. If the homeowner wishes to keep the house - can he or she accomplish some sort of workout with the existing lender or a new lender.
Selling the Home or Deed in Lieu
3. Does the homeowner wish to sell?
Is the home underwater? Why might the homeowner offer a Deed in Lieu?
How can we leverage a falling market and an offer of deed in Lieu?
Will the bank respond to a lawyers request for a short sale more promptly than a Realtors?
How will the home be marketed and sold. Should we look to sell to an investor?
What is the fair market value of the property? Will a fair market value listing price get the home sold in the cuurre market?
Surprises
4. What is a deficiency? Is the homeowner aware that in some situations the bank may seek a deficiency judgment? Is the client aware that if the bank gets paid less than it owes, the homeowner may be responsible for paying tax on the debt forgiven?. In other words a $100,000 short fall to the bank may turn into $100,000 dollars worth of income to the homeowner. This income might even bump up the homeowners tax bracket and cause a $30,0000 dollar tax increase or more.
Can a lawyer leverage his legal skills to eliminate or minimize this problem? Depending on the facts, there is no doubt about it. If the debt is disputed, part of the negotiation may include getting the bank to agree the debt is paid in full by the proceeds from a sale.
Other Options
5. What can a homeowner do if there are no buyers for the short sale? This is where the need for Plan B arises.
We will discuss more about plan B on a future blog.
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