Short sales and Bankruptcies??
I was recently approached by a fellow agent to process a short sale for her client who is going through bankruptcy. I have heard in the past to stay away from short sales when client is going through bankruptcy. Can I still help these sellers or should I avoid it?
Replies to This Discussion
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Permalink Reply by Smitty on
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Takes longer and you have to be patient, but when the court releases the property you should be able to continue with the sale so long as the court is on board.
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Permalink Reply by Stephanie Grantham on
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I dont believe the client has even filed. So you're saying I should wait until the bankruptcy is complete?
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Permalink Reply by Rebekah Gamble on
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Per HAFA and the Settlement Terms, a borrower can not be denied consideration for a short sale while in bankruptcy. You can find the extact verbiage in the MHA guidelines (GSE) and the National Settlement Consent Judgement for the 5 big banks (non-GSE) and make it part of your negotiations with the lienholder(s). You will need to provide an authorization from the debtor's attorney, if in an active bankruptcy. Normally the Ch. 7 takes about 4 months to be discharged and the Ch. 13 is designed to stay open for 5 years. If you don't want to wait for the Ch. 7 to be dismissed, or if the client is in an ongoing Ch. 13, you will need the attorney to file a Motion to Sell. You will need to work with your client's attorney and wait for determinations by the bankruptcy court. I use PACER to check history of bankruptcy. It is at least twice the work of a regular short sale. Most loss mit departments think they can't do a short sale while in bankruptcy, so you have to escalate. The borrower is supposed to be assigned a SPOC that is familiar with bankruptcy, but those are few and far between. It is more accurate to say that the distressed homeowner can not be denied consideration for a short sale or other foreclosure alternatives, but the final approval has to also be approved by the bankruptcy court, if in an active bankruptcy. It's nothing but a good time!
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Do the short sale first. The client can always file bankruptcy POST short sale if needed.
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Harry,
I don't give bankruptcy advice as I'm not an attorney. Seller's work with the attorneys and we work along side. I have NO idea what this person's financial predicament is. My point is you can file bankruptcy AFTER a short sale AND before a short sale.
If the seller doesn't have other debt, I don't see the need for bankruptcy - JMPO, however my point is you CAN file at ANY point in the short sale process. From a listing perspective, you can try to list and get it sold FIRST and the seller can file after to clear other remaining debts or even the deficiency on the short sale if the lender pursues their rights. If you file first and dont' include the house and the lender won't waive deficiency rights, then you have a big boo boo on your hands. Our lawyers always say to file post short sale.
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Like I said, this is a referral from a fellow agent and I don't have too many details on the bankruptcy (as in if they have filed etc.) Sounds like I should give the attorney a call.
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Not sure how filing before or after even affects the commission. Are you saying if you file after you get less? Never heard of that before. The filing of a bankruptcy pre or post short sale doesn't affect the AGENT at all as far as I know. It only affects the timeline of the sale.
So considering I work in an attorney state where my contracts, PNS, OFFERS Huds, etc., are drafted by attorneys and our bankruptcy attorneys say it's better to do it POST short sale, then that's where I lean.
I don't see any reason to do a bankruptcy before a short sale. The primary reason our attorneys suggest it post, is because of the deficiency in the short sale. A lot of homeowners don't even know if they will do a short sale and if they don't INCLUDE the home in the restructuring of the debt or in chapter 7, they would have to open their case back up to file a motion to include the sale if they do it prior. If they do it post sale, they know they have to include the house in that debt. Homeowners are stressed enough...I prefer not to make more work for them.
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Thats almost how I feel...why drag it out any longer than necessary?
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The timing for potential bankruptcy, short sale and taxes are not something we should be giving opinions on to the client. (just my opinion) We should be advising the distressed homeowner to speak with a well established bankruptcy attorney, a real estate attorney that specializes in foreclosure and an accountant specializing in real estate foreclosure before they decide to short sale their house and have us list it. I am sure there are situations where it is better to delay the bankruptcy, hurry the bankruptcy or avoid the bankruptcy, but I am not going to be the one to suggest one way or the other.
Loss preparation is a big deal and worth the time and money it takes to look at all potential solutions and ramifications. It is way better than looking back 2 years later and wishing we had done one thing ahead of the other.
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I agree with you completely Rebekah. I am going to visit again with the listing agent and the bankruptcy attorney and figure out the best solution for these homeowners. Thank you all for the information.
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Permalink Reply by Jim Schneider on
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Stephanie,
getting back to your original question, which was "Can I still help these sellers or should I avoid it?" That may be a simpler question to answer.
First, you should be able to get all of the pertinent information. If the listing agent wants you to take this on, they should be willing to let you know what you're in for. (was bankrupcy filed, what kind, when, etc.). If the clients or agent won't be that open with you, walk. You deserve to be treated like a professional.
Second, if they have or will file bankrupcy pre-sale, this may make the sale take longer if there is already a sale in the works. That being so, you have to make a business decision about whether you'll take this case, and if so how much you will charge.
Good luck.
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On another thought . . . is it possible that you will be processing this short sale as an effort by a homeowner thinking that they are prolonging the foreclosure process until they can complete their bankruptcy? When I am processing a short sale, I have to provide the financials or I provide the bankruptcy documents which show the property in the discharge of debt. If you are processing a short sale and the bankruptcy is not finalized, you will be requested to provide the financials. Then, if BOA, you have their request for the 4506-T at initiation - that is a financial document. I haven't come across that one, yet, but have an image of uploading the bankruptcy in lieu of the 4506-T to satisfy that upload with an explanation.
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