Why Bother With A Short Sale!

With values plummeting and virtually every owner upside-down, many Ginn owners are looking for ways out of their mortgages. Or they simply can no longer afford to pay the mortgage (especially in addition to the other exorbitant Ginn fees and dues).
We hear that short sales are a way to avoid foreclosure. This is true. But is the hassle really worth the benefit?
In many cases, they benefit others, and don't leave you or your credit any better off than just walking away and allowing the bank to foreclose.
A short sale happens when your lender agrees to release its lien and accept less than the balance owed on the mortgage. The problem is: (1) Actually getting an offer on the property at anything remotely resembling a realistic price (whatever that is!), and (2) Getting the bank to accept the offer even though it may be the best (or only) offer you received after the property has been on the market for nothing short of an eternity.

Who does a short sale benefit? As discussed below, you may not be the major beneficiary.
The lender gets most of its money without having to spend the time and go through the expense of a foreclosure.
The person buying your property presumably gets a deal–a lower price then the debt on the property.
And, perhaps most important, short sales have been latched upon by many realtors as a way of generating income now that the market is in the dumps, since it is likely the only way they can earn a commission nowadays. Be sure to look at who benefits from the short sale: in many cases, it’s everyone but you.

First of all, unless the lender agrees, a short sale doesn’t eliminate your obligations under the mortgage, it merely releases the lien from the property. If you do not negotiate otherwise, you may remain personally liable for any deficiency that results from the ultimate sale of the property.
Secondly, a short sale will seriously damage your credit, not much different than a foreclosure.
Finally, many lenders will issue a 1099-C for any forgiven debt resulting from the short sale. In other words, you can owe taxes on this forgiven amount. As a realtor, I have negotiated short sales for several clients, and there are circumstances when they are the best option. But be wary–in most situations they are likely to be far more beneficial for everybody else than they are for you.

I believe that it is totally irresponsible for a realtor to recommend that a client agree to a short sale unless all lenders agree to accept the short sale as payment in full, agree not to issue a 1099-C, and agree not to file a negative credit report as part of the transaction.

In most cases, it is a hell of a lot easier to have an experienced foreclosure defense lawyer negotiate with the bank to simply take back the property - and avoid the hassle.