December 13, 2010
A common question from homeowners exploring bankruptcy options is whether to attempt a short sale instead of filing for bankruptcy. This is a difficult question to answer in general as there are a number of factors to consider and weigh based on the needs and interests of the homeowner. For practitioners and homeowners alike, one of those factors will no longer be an issue, at least in California.
Starting January 1, 2011, a new California law will prevent first mortgage lenders from suing individuals for any deficiency after the first mortgage lender accepts a short sale.
To help a client decide whether to consider a short sale instead of a bankruptcy the practitioner should review the following factors.
1.Does the homeowner have a second or third mortgage?
2.If so, how much is owed on the second or third mortgages?
3.Are there other debts and obligations? How much total?
4.Is there consistent and steady household income that allows the household to meet its other monthly expenses?
5.Does the homeowner have other assets? What are the value of these assets?
6.What is the anticipated credit impact between a short sale and a bankruptcy? (many people have incorrect assumptions about the credit impact)
The answers the client gives to each of the above questions will help a practitioner guide the client. However, it is incumbent upon the practitioner to help weigh the value of each of the answers provided. For example, wiping out a second mortgage of $15,000 in bankruptcy must be weighed against the homeowner being concerned about protecting his credit profile. However, wiping out a second mortgage of $150,000 in bankruptcy will very likely devalue the idea of protecting ones credit.
As always, I never recommend going through the bankruptcy process without proper representation from a competent bankruptcy lawyer. However, having an understanding of the above mentioned factors will allow the client and the practitioner to be more prepared and confident about the appropriate decision.
The new law will be found (after 1/1/11) in California Code of Civil Procedure 580e.
A common question from homeowners exploring bankruptcy options is whether to attempt a short sale instead of filing for bankruptcy. This is a difficult question to answer in general as there are a number of factors to consider and weigh based on the needs and interests of the homeowner. For practitioners and homeowners alike, one of those factors will no longer be an issue, at least in California.
Starting January 1, 2011, a new California law will prevent first mortgage lenders from suing individuals for any deficiency after the first mortgage lender accepts a short sale.
To help a client decide whether to consider a short sale instead of a bankruptcy the practitioner should review the following factors.
1.Does the homeowner have a second or third mortgage?
2.If so, how much is owed on the second or third mortgages?
3.Are there other debts and obligations? How much total?
4.Is there consistent and steady household income that allows the household to meet its other monthly expenses?
5.Does the homeowner have other assets? What are the value of these assets?
6.What is the anticipated credit impact between a short sale and a bankruptcy? (many people have incorrect assumptions about the credit impact)
The answers the client gives to each of the above questions will help a practitioner guide the client. However, it is incumbent upon the practitioner to help weigh the value of each of the answers provided. For example, wiping out a second mortgage of $15,000 in bankruptcy must be weighed against the homeowner being concerned about protecting his credit profile. However, wiping out a second mortgage of $150,000 in bankruptcy will very likely devalue the idea of protecting ones credit.
As always, I never recommend going through the bankruptcy process without proper representation from a competent bankruptcy lawyer. However, having an understanding of the above mentioned factors will allow the client and the practitioner to be more prepared and confident about the appropriate decision.
The new law will be found (after 1/1/11) in California Code of Civil Procedure 580e.
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Bankruptcy Wizard
It's not like the majority of short sales contracts actually closed. It's quite the opposite. Actually getting a short sale contract to close is almost a miracle these days. I think the miracles, for Californians, has now been legislatively... reduced even further.
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