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Is a short-sale 'shortfall' discharged in bankruptcy?

I would like to sell my house and move but owe much more (fixed mtg) than mkt value.   With a short sale, it is my understanding that I have to come up with the balance.  I don't have adequate savings for this.  Is my only option bankruptcy, which I would like to avoid.  If I convert to a rental (which I have done in the past - a big headache), I still would have to hire property manager and take a loss plus tenants could trash the house.  What is the least 'bad' course of action.
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January 11 2009 - Royal Oak
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Answers (3)

Banks typically start negotiating saying you must cover the shortfall.  That is part of the negotiating the agent does with the bank.  Your financial statement will show that you do not have the assets to repay.  Packaging and negotiating a short sale is a good option for you, but it has to be done well.  Make sure you are working with an agent who knows this process and has done it successfully.  If you would like to call me, I would be happy to talk to you about it further. I am in Birmingham.
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January 29 2009

Michael Emery had a decent post, but was in error about getting a mortgage after bankruptcy.  FNMA/FHLMC require 4 years, FHA only 2.

In a short sale, lender forgives difference between what you owe and what property sells for.  You will need an EXPERIENCED agent to assist with this.  Contact me if you need assistance with finding one.

Also, you have to worry about lender sending 1099 for forgiven debt and deficiency judgment.  1099 should be covered by 2007 law, but check with CPA.  Deficiency judgment you will want negotiated away or could force you into bankruptcy.  Check with an attorney.

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January 24 2009
Bankruptcy isn't the only option. Talk to your lender before doing anything. They might be willing to forgive part or all of the difference between a possible sale price and what is owed on the loan. They might also be willing to write a loan on part or all the difference of the shortfall between sale price and the loan amount.

If you file for bankruptcy (which has gotten alot harder and more expensive from what I have read) you will be unable to purchase a new home most likely until the bankruptcy is discharged, which I believe is 7 years. Your only hope for buying a home at that point would be a contract for deed, most likely at a higher than average interest rate.


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January 11 2009
 
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Is a short-sale 'shortfall' discharged in bankruptcy?
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