You filed for bankruptcy and now are contemplating a short sale.
Maybe you got a phone call or a letter from some “workout consultant” who “specializes” in these sorts of things.
Perhaps a real estate broker called to let you know someone wanted to buy your house but it would need to go through a short sale in order to make the deal happen.
Before you agree to a short sale after bankruptcy, let’s take a step back and inject a little bit of reality into the situation.
After Bankruptcy, You’re Not Liable On The Mortgage
You went through bankruptcy and got your discharge. You’re no longer personally liable for the balance due on the mortgage. If the house goes into foreclosure after bankruptcy the bank can’t come after you for the deficiency.
There’s no further negative credit stigma because your debt has been discharged already.
If the bank takes back the house, it’s their problem – not yours. You can certainly sign off on a deed giving back the property after bankruptcy, but it’s up to the bank to come to you. This is a matter of convenience, not obligation.
Homeowner’s Association? That Changes The Game (Maybe)
Under Section 523(a)(16) of the bankruptcy law, homeowners association fees that arise after the bankruptcy case is filed are not discharged. That means that all HOA fees that arise from the date of the bankruptcy filing until the day the condo leaves your name, the meter is running.
If you’re giving up your condominium in bankruptcy, you’re theoretically looking at a very costly post-bankruptcy bill. The short sale specialists want you to believe that the pipe is going to come calling – but will he?
In most cases, the HOA fees that accrue between the bankruptcy filing and the foreclosure sale aren’t going to make a difference to you. In order to sell the property, the mortgage bank is going to need to pay off all debts on the property – include those pesky HOA fees. A failure to do so means that nobody’s buying the property.
When the lender pays off the HOA fees after bankruptcy, that gets added to the amount of money you owe the mortgage company. The debts to the lender were discharged in your bankruptcy.
Once again, this is the lender’s problem after bankruptcy – not yours.
Getting a short sale done after bankruptcy Is A Headache
You’re going to need to enter into a contract of sale for the property (I’m betting that real estate broker has one ready for you to sign, surprise surprise). Then you need to get it over to the right people at the bank (good luck with that). They’ve got to review it, get appraisals of the property, and make you jump through a bunch of hoops.
If you’re working with a workout consultant, you’re probably going to have to spend some money to get the deal done, too.
So you’re going out of pocket and out of time. And you get nothing out of it.
The only people who win when you do a short sale after bankruptcy are the real estate broker (who makes a commission on sale of the property), the workout consultant, and the buyer (who gets the property at a lower price than would be possible without a short sale).
Notice the person missing from this scenario? Yup, it’s you. No benefit whatsoever. Of course, this presupposes that you don’t want your friend or relative to get a sweet deal on a house – but that’s another ball of wax and doesn’t involve these players.
So what happens if there’s a foreclosure after bankruptcy?
Eventually you’ll have to move out. And until the bank takes title to the property you’ll want to keep current on the taxes and insurance. But aside from that, pretty much nothing.
Why would you possibly consider a short sale after bankruptcy? What’s the point? For the most part, there is none. Short sales after bankruptcy are a waste of your time and your energy except in limited situations.