I have a very good offer on a house I listed as a short sale. The owner has also just filed Ch. 7 to discharge some debts she “inherited” in a divorce. The lender has just filed for release of stay. My seller’s BK attorney is telling her that so she has no reason to go through with this short sale because if the lender forecloses, that won’t appear on her credit, just the bankruptcy.
Here’s my question: Is this attorney correct? Will a short sale benefit the owner at all, and how do I convince this attorney if she does?
Her attorney is right. She has no benefit to her credit for a short sale. BK is as low as you can go and foreclosures will not hurt and more. I do not know the actual points taken off for each item but it gets low and most companies will not lend until after 1 year of good credit which is hard to get. It all is bad when it gets that low. You can still do hard money loans etc but I would suggest forming a corp or LLC and not sign personally until discharged or released from BK.
Once the lender gets the stay released they can foreclose and maybe your buyer can buy it then from the lender once they actually own it. The owner is probably going to stay there without making payments as long as possible to try save some cash to get a new start. Is it investment property for your buyer or will it be their home. It would be harder to make a deal if the buyer is looking to move in.
I hope this helps a little. The court could actually force a sale if the buyer were to get approval from the lender and the house was included in nonexempt property but it would be a long short and considerablly expensive in attorney fees. The debtor can clain the property as exempt too and deal with the loan directly after the automatic stay if lifted by law or the lender gets the stay lifted. It can get pretty complicated as you can see and I have a hard time putting into words what I have learned in my own several trials and tribulations in BK. I am not an attorney but am just giving you what I have learned in my several cases personally.
Good luck and thank you,
Ted P. Stokely Jr
11505 Sw Oaks
Austin, Texas 78737
512-301-9171 home
512-587-6177 mobile
If the lender forecloses it will certainly affect her credit. A BK is not as detrimental on the credit report as a foreclosure, so she should definitely pursue the short sale. Once a foreclosure occurs it will take 7 - 10yrs under normal circumstances to be able to get a new conventional house loan: BK will hurt for 3 - 5 yrs. If you can get out fm under the burden of the foreclosure do so. That’s how we investors try to assist people in trouble. Our biggest benefit is to stop the foreclosure.