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I have a bit of a dilemma regarding short sales. All circumstances aside, the individuals that are approved for a short sale are basically given money, i.e. debt is forgiven. It is my understanding that most short sales are the result of a home equity refinance of some sort. This is the scenario that is annoying me: A home is purchased in 2004 for $250K. The homeowner refinances the home in 2006 receiving $50K to buy a Harley/Boat/New Car/Plastic Surgery etc. The total mortgage due to the bank is now $300K. The market crashes. The house is now worth the original $250K. The house is now underwater mainly due to the 2006 refinance. The bank allows a short sale of the home for $260K. The homeowner's debt of $40K is forgiven. So the former homeowner is basically given $40K and their credit score gets a bit of a spanking. I know the numbers fluctuate due to the monthly payments made and that it is not a clear cut grant of $40K; however, I don't think I have the scenario all wrong? As a responsible knowledgeable buyer of anything over $50, I must ask … Where is my forgiven debt, i.e. Harley/Boat/New Car??? I must also ask….Are hard working credit worthy responsible buyers getting the short end of the stick in this short sale environment?
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