The Legal Concerns with Short Sales

The Legal Concerns with Short Sales

The Legal Concerns with Short Sales

The Legal Concerns with Short Sales

There are many areas that have their own report with large numbers to look at when it comes to short sales. Some areas are so saturated, that the neighborhood looms with despair as the neighbors talk to each other about losing their home. Their only solace is in the fact that they know they won't have a foreclosure on their credit, but that they will be able to have the mortgage listed as "settled", or as "paid as agreed". While many agents and mortgage originators are jumping into the fray, how does this work exactly?

The truth is that there are more legal concerns for the salesperson than there are for you. Aside from you knowing about how this many affect your taxes, we as salespeople are responsible for being clear on how we represent the facts to you from start to finish. I am a professional, and I won't conduct myself otherwise, but make no mistake, this can't be taken lightly. It is true that in 2007, the government directed the IRS not to count forgiven debt as income, but this provision has limitations. Beware, that this will only be the case on a purchase loan, not a cash-out for refinance, nor does it apply to an investment property. There is also a limitation on the dollar figure attached to this. While it's generous it doesn't matter, the truth is the truth. Whether it's one million dollars or ten thousand, it shouldn't make a difference. If you are a salesperson and you are reading this, then you are responsible for the truth to be told to your client. You can't run around telling people that there are no tax consequences, and be clear when you are explaining it that they understand that there are limitations.

One other common white lie that is being told, is that if the primary mortgage holder approves the short sale that the debt has been forgiven. The lien holder on a second deed of trust may not care at all, and therefore won't forgive the debt. They may accept a partial payment, but there is no guarantee. What the second lien holder doesn't get, they will more than likely sell it off to a collection agency thus leaving you with more frustration. The other downfall when this happens, is that the collection agency may come looking for the seller for the balance, even after a year of it having been sold.

If you are a seller, keep in mind that much of this information will never be told to you. Of all people, when selling a home you need to know up front that there could be much recourse on you unfortunately. It is not unheard of, for the lender to come looking for money in your bank account or even your retirement for the money, so it might be a good idea to get your attorney involved if this happens to you. They might contact the real estate agent before they ever contact you, but it still makes for an ugly situation. If you live in a state that is called nonrecourse, then the lenders have no rights to your money. Again, if you are a salesperson, take the time to know your industry, and have this information handy. Shame on you if you ever mislead someone down the primrose path of an untruth. It is your job to know your industry and practice it with due diligence.

For more information on short sales, and other information pertaining to them, you can visit www.inlandempireshortsaleresource.com.

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