Has anyone ran into a short sale whereby the borrower/owner has assets in a 401K plan and equity in their personal residence? I have a client wanting to do a short sale on three investment properties and he does not want to mention the 401K…I don’t want to waste my time if honesty is not in place? Am I missing something here?
If the shorting lender requires a financial statement (which about 25% of them do) then the homeowner will have to include their assets and sign off indicating that the figures are correct.
If they have to show their assets the 401k shouldnt be an issue. A 401k is not considered a liquid asset to the bank as there are rules governing distributions. The 401k plan and the IRS have guidelines regarding taking distributions…which, depending on diff factors, may include heavy taxation and penalties. Distributions may not even be available.
Having equity in a primary residence shouldn’t be an issue (again…IF the lender requests a financial statement) since the bank knows that in todays market, the owner can’t just sell their property tomorrow to come up with money…again…it is not a liquid asset according to the bank. The shorting lender may try to attach a lien to the property for a portion of their loss. This is unusual but a possibility. I have seen it once.
All things considered…I don’t think it is a waste of your time. Reason being is even if the banks request info regarding assets/liabilities, they hardly review the docs…at least not with a high level of scrutiny. They look at the contract and the HUD…everything else is just there for auditing/documentation purposes (most of the time).
No matter what…You definitely want to be honest and show correct figures on any supporting financial docs. It’s not worth going to jail!