Foreclosures and Short Sales: What to do?

In a New York Times article, a Los Angeles man’s battle with his mortgage company rings true for homeowners around the country.

The owner hasn’t made his mortgage payments in about two years, owing more than $800,000 on a home worth less than $500,000 now. The bank threatened to foreclose six different times, while repeatedly extending the sale date.  The owner has brought three offers of a “short sale” to the bank, each of which has been refused.

The bank spokesperson said, “We have to protect our investors’ interests. We have reputational risks involved.”

What we see in our bankruptcy practice

Our debtor clients tend to feel guilty about defaulting on their mortgages, or the prospect of imminent default.  They feel bad for the consequences to the bank, and feel embarrassed about the prospect of a foreclosure.  Short sales are one alternative, fraught with traps for the unwary; income taxes arising from debt forgiveness, difficulties in getting junior lienholders to agree to a short sale, inability to convey good title at closing if all lienholders are not covered by the short sale, etc.

If you face foreclosure or want to investigate a short sale, call a qualified counselor immediately.  Never assume that the mortgage company has all the right answers or holds all the cards.

In the case of the man in LA, his mortgage company is making money from the appraisals it orders from a subsidiary of the company, and from the insurance that it places on the home (also sourced from a subsidiary).  Any advice given by a debt collector is suspect — call our offices for credit and bankruptcy counseling before you make a decision.