Can you avoid a short sale?

  • Are you struggling with serious debt?
  • Are you unable to pay your mortgage payments?
  • Are you facing the possibility of foreclosure?
  • Are you considering a short sale of your home?

Many people think that a short sale might be their only choice when facing serious debt and difficulties paying the mortgage. However, there are many pitfalls involved with short sales, and there might be better options available.

Our Grand Rapids lawyers have a wealth of experience to help our clients understand all of their options, including how a short sale of real estate works and whether it is the right choice. Two of our Michigan lawyers are board-certified consumer bankruptcy specialists.

Understanding The Pitfalls Of Short Sales

A short sale is when a mortgage company gives a homeowner permission to sell the house at a reduced price, without paying the full amount owed. While it sounds like a preferable arrangement, especially for those facing foreclosure, short sales can actually be highly complex and troublesome for the homeowner.

Some of the pitfalls of short sales include:

  • The mortgage company requires the homeowner to go through multiple steps with no real promise that the short sale will be approved.
  • Short sales have a possible tax liability. The debtor may be required to pay income tax on the deficiency. A large tax bill from the IRS may result from a short sale in many cases.
  • The debtor may be responsible to make up the difference between the unpaid mortgage and the price the house is sold for. The end result may be that there is a very large debt still owed on the home after the short sale is completed. Bankruptcy may be a better option either before or after a short sale.

For these and other similar reasons, many people find that bankruptcy is the better option for mortgage debt relief.

The Benefits Of Bankruptcy

Bankruptcy is a court procedure that either cancels most debt completely (Chapter 7), or reorganizes it into a creditor repayment plan (Chapter 13). Either chapter of bankruptcy places an automatic stay or injunction on all creditor actions, including foreclosure. Whether you actually keep your house depends on your financial situation and the chapter of bankruptcy you file.

Chapter 7 cancels debt and generally results in debtors giving up their house if the debtor cannot make the payments and wants to cancel the debt. In other cases, a Chapter 7 debtor may keep the house and reaffirm the debt or seek to modify the loan with the lender. If the home is surrendered, the debt is canceled. This allows the debtors to walk away from the payments without the negative repercussions of a short sale.

In a Chapter 13, debtors consolidate debt into a single affordable payment. The reorganization often reduces debt enough that the debtor can afford the mortgage on the house and can make up past due payments. Debtors can keep their home so long as they continue to make the payments to the Chapter 13 plan.

Contact our offices today at 616-784-1700 to schedule a free initial consultation with one of our attorneys. Evening hours are available by appointment.