Homeowners who are in financial trouble with their property sometimes wait too long to seek help, and then cannot mitigate the situation with a loan modification, a short sale or a deed in leiu of foreclosure. They wait so long and miss so many payments that significant harm is done. The embarrassment, the sense of failure, the significant feelings of loss can keep home owners from reaching out for advice and guidance. This is happening on a big scale and is happening within my own close circle of loved ones too.
Recently a friend of mine, with whom I’ve done several transactions, informed me that she’d done a short sale with her home through a local attorney and hadn’t wanted to bother me with it, though she knew I’d have been willing to help. (She was right: I would have.)
I was stunned on several counts, most of all that we hadn’t talked before she did it; I truly think it matters tremendously to do a good amount of information-gathering, and talking with trusted sources, before pulling the trigger on something big like this. But very often, people become more private when under financial pressure. (Others are virtually in denial.) This really just makes things worse since they may make huge decisions with insufficient information.
After a moment or two, I also realized I’d never seen her San Jose condo on the MLS and asked her how it could have sold without my noticing it. She told me that a lawyer had helped her to effect the transaction, but he’s not a Realtor and it was never put on the multiple listing or marketed like a regular home for sale (aiming to get the highest price via the most qualified traffic). He brought in only a few people and one of them bought it. “I asked him how much he charged and he told me that the bank would pay the fee”, she offered. She didn’t seem to know how much he’d been paid. The sale was done, though, and she was relieved. I was glad that she felt relieved but not convinced that her financial danger was over.
Feeling protective and worried about her being chased down later for the forgiven debt, I asked her if there would be any deficiency judgment. She didn’t know what I was talking about. I tried to clarify by adding “are they going to send you a 1099?” (reflecting the “phantom income” or forgiven debt) – again, no idea what I was talking about. There were other things, too, which pointed to the fact that although she’d gone through a short sale, and the sale was closed, there were an awful lot of things which she simply didn’t understand. I’m not convinced that she comprehended the risks of what was involved even after the close of escrow. I am hoping that her lawyer didn’t have her sign off without a promise from the lender that there would be no deficiency judgment – but since she didn’t know about it, I’m not so sure that happened.
A rush to action could have been prevented with a little research and some conversations with more than just one professional. When I speak to a home owner who’s considering a short sale (or deed in leiu or just walking away), I always suggest that he or she consult with an attorney and also a tax professional; these professionals can speak to issues that are not my area of expertise. A big plus, usually, is that there is no “vested interest” on the part of the lawyer or tax professional in advising one way or the other. He or she gets paid for advice and does not gain from there being a short sale (or lose for lack of it). That neutral, unbiased advice is crucially important. As a Realtor, I should not advise anyone to do or not do a short sale. One big reason is simply that I stand to get paid with a short sale, but not if other avenues are taken. In the case of my friend, the person advising her to do the short sale did profit from her following that advice. I am concerned about that. But it’s too late – so nothing I can do to help and I certainly don’t want her to feel bad about it so of course just let it lie. I am hoping she will be ok. I’d feel more certain of it if she understood better what she had done.
For my readers, though, I want to encourage you, if you’re in trouble, to not just do something impulsively and without consideration, but instead, please do some research and reflection.
Of course, I have seen the other extreme too, where instead of spontaneously jumping into it, Silicon Valley home owners carefully decide to do a short sale but then are so emotionally upset that it’s nearly impossible to move ahead. They stall or find reasons to not either get ready to sell or to make the home ready and presentable. Foreclosure inches closer and closer and the risks, and the stress, go up. That’s not good either.
One bit of good news now, though, for people considering a short sale is in a recently passed California Senate Bill. For people with just one loan, there are benefits to waiting until January to close escrow on a short sale, due to a new law in California, SB 931. After January 1st, home owners with just one loan who complete a short sale will not have to worry about a deficiency judgment. Now that’s a relief!
Are you in trouble with your San Jose, Los Gatos, Saratoga or Campbell area home? I offer a no-cost, no-pressure initial consultation. I won’t push you to list or sell your home with me or to do it at all. I may be able to suggest alternatives that haven’t occurred to you, perhaps some that can help you to keep and stay in your home. I will actively encourage you to do your research and get qualified advice. It’s important to neither drag your heels nor to rush impulsively into a short sale. Gather information, do your research, then chose and act!
Related articles on Silicon Valley short sales:
Silicon Valley Short Sale Listings (on my Live in Los Gatos blog)
Silicon Valley Short Sale Listings: Tracking the Numbers in Los Gatos, Monte Sereno, Saratoga and the Cambrian Park Area of San Jose (also on my Live in Los Gatos blog)