There is a great deal of misinformation about short sales and foreclosures on the net. I see the same potentially negligent information on websites from Florida real estate agents, Arizona real estate agents and California real estate agents.
I suspect the information comes from the same trainers. I frequently see these agents hold themselves out as "certified specialists" trained by a top real estate trainer or loss mitigation specialist.
Lets review the misinformation which I have seen come up in geographically limited searches like short sale florida, short sales san diego, short sales california, short sale bradenton and short sale sarasota.
1. There must be a hardship such as a lost job or a health concern for a bank to consider a short sale.
Response: Absolutely wrong. I have a bank considering a short sale right now. I reserved the right to submit appropriately limited financials later if necessary. I expressed my concern to the loss mitigator that this is a business transaction. While being cordial and circumspect, I let the bank know that in a falling market sentiment about hardship may be an inappropriate consideration. (for clients with assets.) Hint: the right statement in the beginning of the negotiation may minimize or eliminate any potential deficiency judgment or debt forgiveness tax claim by the IRS. (Contact me me if you would like to know why.)
2. Short sales cost the homeowner nothing.
Response: Not really, short sales do cost the homeowner his/her credit rating and the homeowner may lose use of the property which he or she could have had for a few extra months. Overall this statement does not seem that harmful.
3. Save your credit with a short sale.
Response: Right now dubious, soon to be incorrect.
4. You have to have a buyer before you can approach the bank with a short sale.
Response: Wrong, this is contrary to one of our proprietary strategies designed to get a property sold and avoid or minimize loan forgiveness.
5. A homeowner can authorize this Realtor to negotiate with the bank because she is certified specialist.
Response: This borders if not crosses the line of practicing law without a license. Actually as I think about it - it must be practicing law without a license. I welcome contrary opinions. I would love to hear from others on this issue.
6. To accomplish the short sale you should give the bank the financial information they request.
Response: Wrong, dangerous, practicing law without a license and very harmful to clients with assets. This has been discussed in a few places on this blog.
7. Then I see Realtors advising homeowners on bankruptcy options. Lawyers are afraid to give advice on the net. We always have disclaimers. Yet we see Realtors telling homeowners not to file for bankruptcy while letting the Realtor conduct short sale negotiations. Can you imagine how much these Realtors' Brokers are going to pay out to people who could have filed bankruptcy but did not because Realtors provided faulty legal advice and foreclosure services. Think about how many people a plaintiff's firm could get in a class action a year from now.
8. I have heard and read Realtors say a short sale is either going to lead to a deficiency judgment or a taxable event as loan forgiveness.
Response: Maybe not. I think you would have to be a educated as a lawyer and trained as a Realtor to understand why. If you spend time to thinking about Fair market value and what statements you might make to the bank to get the clock ticking, you might significantly minimize or eliminate a homeowners liability to the bank and the IRS. For now I do not feel comfortable publishing my thoughts on this subject because it is only my legal opinion, I have not yet negotiated with the IRS on this issue.
I offer to help the first person who contacts me with a large loan forgiveness tax bill from the IRS - for free - or at a very discounted rate.