Thursday, June 24, 2010

Do you think there is life after a short sale? Think again

I was reading an article this weekend about how short sale sellers aren't exactly off the hook to go on with the rest of their lives after they and their broker have 'negotiated' a short sale.

A recent Washington Post article talks to this point, that homeowners who refinanced their homes and then subsequently negotiate a short sale are not protected from deficiency judgements brought by the banks.  Even after you have negotiated the short sale, the banks can come back to you and require that you pay back the forgiven amounts.

I'm the first one to admit I have stayed away from this part of the market.   I could {and probably will} write another blog piece about how I think even the term "short sale" isn't exactly what we should be calling these types of sales....but I digress....but the entire process just seems ripe for these types of uncertainties.

Why has this happened?  In years past, when a 'short sale' was just a term we used when the seller was going to have to bring money to the closing table to close on their property, banks were more forgiving and the cost of recouping their losses didn't justify their costs of pursuing the funds from the seller.  But in today's environment, the banks are experiencing huge losses, and they are reaching out to the first one in line to recoup those losses - the sellers of the properties.  Often the sellers go away from the short sales thinking that their lives are back to their new normal, and start their lives again.  If that includes building a new portfolio the banks are watching and may pursue your new assets as their opportunity to recover some of their losses.  From the bank's point of view, it only makes sense.  To the seller, it's a very unwelcome surprise.

So for sellers, please make sure you read all of the conditions of the approval, be sure to read all of the fine print.

For those brokers who have always thought it was in the best interest of everyone to be the one to lower their compensation for the 'deal to go through' (banks don't ask the title companies or anyone else, but we have made it easy on them by thinking we aren't worth our paychecks) I wonder if they are going to be compensated when the banks go back to the seller and recover their deficiencies?  Ah, well - again, I digress and I see another blog post coming!
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