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SHORT SALE & BANKRUPTCY: Benefits of doing a short sale when filing for Bankruptcy Protection

WARNING: A lot of Bankruptcy Attorneys out there advice their clients to forgo short selling their properties when filing for Bankruptcy. If your lawyer gives you such an advise, FIRE HIM and hire a more knowledgeable lawyer.*

"MANY BANKRUPTCY ATTORNEYS ARE NOT YOUR FRIENDS!!!!   I hate to say it, but many times a bankruptcy attorney may have his or her own agenda and that may not be in your client’s best interest and may take you out of the deal as well." ~ Ed McFerran (McFerran & Burns, P.S. Law Firm)

PLEASE READ ON! The following article was written by a Bankruptcy Attorney:

Bankruptcy debtors may benefit from short selling their home
by Chip Parker, Jacksonville Bankruptcy Attorney

As a bankruptcy lawyer, I have often advised clients not to bother with a short sale if they’re filing bankruptcy. They are such a headache, and what is the point anyway? The bankruptcy discharge will wipe out the debtor’s obligation on the house. However, Jacksonville real estate lawyer David J. Heekin, Esquire sat down with me to explain the advantages of a short sale even if a bankruptcy has been filed.

Most homeowners who may need to get out of their current home for economic reasons want to buy another home in the future. According to Heekin, Fannie Mae and Freddie Mac, the two government-sponsored entities that dominate the secondary mortgage market, have a variety of waiting periods for borrowers who have experienced “derogatory credit events” such as short sale, foreclosure, and bankruptcy. Under their current guidelines (as of January 2011), the waiting period for a borrower to purchase another house after a short sale is only 2 years.

However, if someone needs to file a Chapter 7 or Chapter 13 bankruptcy anyway, he won’t owe his mortgage company anymore. So, there appears to be no incentive to short sell his home or investment property.

No so, says Heekin. ”I assume your client wants to buy another house in the future, and a short sale will reduce that waiting period. The waiting period to buy again after a Chapter 7 or 11 bankruptcy is usually 2 years after the discharge, and the wait after a Chapter 13 bankruptcy is 2 years from the date of discharge. The Fannie Mae waiting period to buy again after a foreclosure can be up to 7 years. So, a borrower can purchase a home again in as little as 2 years with a combination of bankruptcy and short sale on their credit vs. a wait of 3-7 years with bankruptcy and foreclosure.”

Heekin explains that these timelines can possibly be shortened by extenuating circumstances which, according to Fannie Mae, are “nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.” Heekin points out that this is a vague definition and open to interpretation. ”Does your client really want to argue with a lender a couple years from now about whether he meets this definition? A short sale makes extenuating circumstances irrelevant.”

If the home buyer is eligible for an FHA mortgage, how they handled their previous home makes a huge difference. The timeframe for an FHA-qualified borrower to buy again after bankruptcy and foreclosure is 3 years, but with bankruptcy and short sale, it can be as little as 1 year, depending on the type of bankruptcy filed.

One problem bankruptcy debtors encounter is the post-bankruptcy accrual of homeowner association dues. This is especially problematic for condo owners where the COA is hundreds of dollars per month. In my jurisdiction (MDFL), if my client has vacated the condo, the courts won’t typically hold them liable for post-petition COA dues, but they still get the dunning letters and phone calls. The short sale will resolve the COA and HOA issues.

“The number one post-petition debt is the condo association dues. There are also hazard insurance premiums and other maintenance expenses and/or assessments. In most cases, a short sale will help you dispose of the property much faster than if you simply wait around for your lender to foreclose, thus greatly limiting your exposure to any additional liability,” says Heekin. ”In particular, I have witnessed lenders drag their feet foreclosing on owners of condominium units. In my opinion, one of the main reasons for this is that the lender does not want to begin incurring the monthly maintenance assessment.”

One other consideration supporting a short sale is privacy. Although a bankruptcy is public record, it is pretty hard to find someone’s bankruptcy filing without a certain level of expertise or pulling a credit report. By contrast, it is very easy to determine whether one has been foreclosed upon because the Final Judgment of Foreclosure is recorded in the official records of the county where the property is located.

If the homeowner can short sale the property BEFORE the lender completes the foreclosure process, he can avoid having this document being recorded. Heekin points out, “One of the easiest ways for a future employer or landlord to research information about you is to search your name in the official records. Once a document is recorded in the official records, it remains in there for all time and is easily accessible by anyone with internet access and a computer. A hundred years from now, someone will still be able to enter your name in the official records search on the Clerk of the Court’s Web site and pull up your final judgment of foreclosure.”

And there are other societal benefits to short sales. From a purely emotional standpoint, many debtors simply want to get on with their lives after having dealt with their financial problems, and for them, this includes selling their house so that they can have a sense of closure with the entire process. Since short sales usually sell for more than a bank-owned property, a short sale of the house will help stop the slide of home values in the neighborhood, which here in Florida is still a huge problem. There are people are genuinely concerned about the effect a foreclosure will have on their neighborhood and their neighbors’ property values, even though they are on their way out....

If you are thinking of filing for Bankruptcy Protection, please contact us and we'll help you find a knowledgeable attorney who will work for you best interest.

*The circumstances described in this article may not apply to your individual case. Granted, we do recommend that you discuss the circumstances described in the preceding article with your attorney.

What our clients are saying  

Carlo, Thank you for helping us finding our dream home. Your professionalism and honesty are greatly appreciated. We look forward to doing more business with you in the future.


~ Annie & Jonathan

I just wanted to thank you for all of your help in finding a home for my family. We've gone through this process for almost nine months and you've stayed patient, positive, consistent and worked hard for us through this whole process. Lynn and I are very thankful that you were able to save us from the many pitfalls we could have fallen into such as the new construction property in a flood zone that the builder didn't even know about, many overpriced homes and homes in general that you didn't think would be a good fit for us. One thing I know for sure is that I won't ever be using another agent for my future real estate purchases because your overall level of service and expertise is above and beyond everyone else in my opinion. CONTINUED...


~ Andrew & Lynn B.

Finally, I don't know how you managed to do this in this crazy sellers market but THANKS for negotiating our home pruchase down over $40,000 which is over 8 PERCENT of the sale price!!! Your negotiating skills are beyond exceptional! Thank you again for getting us into our dream home at the dream price. You've got a customer for life.


~ Andrew & Lynn B.

Carlo has helped myself and my family find the right home for the right price; and had gone above and beyond what was expected of anyone. I got sick during the process and was not able to complete many of the necessary steps in the home buying process. Carlo spent countless hours of his own time helping my family through those rough times and I would recommend him to anyone. He is very thoughtful, friendly and most of all honest. I also consider him my friend. Thank you Carlo,


~ The Lockwood Family

After renting an apartment for 2 years and looking for a house for 1 year, we finally get the right house for us. The whole home buying experience was great because of our very hard working property broker. We got exactly what we are looking for in our 1st home! We are now officially home owners!!! We are so excited and happy. Stay tuned for our house warming soon!


~ Renee Ashley

We are officially home owners!!! Thank you Carlo for helping us get our first home. ...I just knew you would be the one that can help us get a great home. All your hard work and experience is very much appreciated. You made the whole experience enjoyable.


~ Jade A.

Carlo, Thanks for everything! I had more than a satisfactory experience and I would for sure recommend you to anybody that I know in the Seattle area whose either buying or selling. ~ Dante


~ Dante D.

Carlo, Thanks for being an awesome real estate agent! The condo is amazing and look forward to working with you again in the future! I hope that you enjoy this rye as much as I do! It is my favorite!


~ Jonathan M.

Hi Carlo, Thank you so much for all your help and patience with working with us to short sale our home. You have done an awesome job and we will definitely recommend you to any one we know. All the things you have said has happened. Can you come out to dinner with us after this is over to celebrate? Have you been to the Crab Pot in Bellevue? Thanks


~ M. & L.

Hi Carlo, Thats really great news, You are a superhero!... Thank you so much for your hard work and patience.


~ M. Villasin

Carlo, There aren't enough words to express our gratitude! You were very thorough and kept us in the loop through the entire process. We were amazed how on point you were with EVERYTHING, even down to the week we would close on a deal. Everyone we told were amazed about how fast and smooth everything went. Your knowledge and expertise is top notch. You have truly exceeded our expectations. We will recommend you to everyone! Thank you for everything!


~ M. & A. Bauer

No words to say but " THANK YOU! ", will pick the keys soon and leave some thing for you at your office. I am not well lately, so moving slowly. Take a good care of yourself and wish the BEST to your BUSINESS!! God bless your parents.


~ S. Chen

Carlo, Greg and I would like to take this opportunity to properly thank you for representing and even advancing our interest to the best you could. We could not ask for any broker as knowledgeable and as professional as you are. We are forever grateful! If your website has a page for testimonials, we would not hesitate to put in good words for you. Nonetheless, rest assured that we will never hesitate recommending you to any one needing of your expertise.


~ Mr. & Mrs. Pangilinan

Congratulations on your 100% Club award! Thank you for being a part of our team, we are honored to be a part of your success. Keep up the great work!


~ David Milot, Owner of RE/MAX Metro Realty Inc.

Thank you for taking the time to explain everything to me. Thank you so much for all your help. We can finally move on.


~ Mai P.

(via Facebook timeline) Best agent!!! Thank you!!!


~ M. Capiral

(via e-mail) Hi Carlo! ...I really appreciate the patience you have with us all the way through the process. We need to take you to dinner!


~ H. Nguyen

Dear Carlo, Thank you for taking so much time showing me properties and helping me learn. I appreciate your knowledge and professionalism. I am looking forward to working with you again. Sincerely, Joyce Pier (425)486-XXXX


~ Joyce Pier

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