I came across a blog on another networking site and got into a bit of a debate as to what exactly a Short Sale is and isn’t. I need to explain that I am a HRC (Housing Retention Consultant) with Titanium and I have the RDCPro (REO Default Certified Professional) Designation through RealEstateEducate.com lastly, I am working on a Short Sale training program I hope to present to NAR (National Association of Realtors) for acceptance in their Continuing Education Program. In other words, I kind of know what I am talking about, just a bit. Ok, so back on topic, what is a Short Sale? Per Wikipedia a Short Sale is defined as…, “a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold.” The above definition is absolutely correct however, I have heard, read, and had described to me that a Short Sale is more than as described above by Wikipedia. Some define a Short Sale as…, a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold and, where the bank forgives the remaining debt. Let me be very clear, a Short Sale is no promise that a bank will forgive the remaining debt! I wrote a blog back on 9/8/08 on REOPro.NING.com that highlighted the use of unsecured promissory notes by banks to secure future payment of the remaining debt before they offer an approval for the short sale. In that blog, I made it clear that some banks are using the unsecured promissory note while others aren’t. In closing, a Short Sale approval doesn’t guarantee a forgiven debt so be careful when you discuss what a Short Sale is so that you don’t set an expectation that you simply can’t fulfill.
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  • It's something that is on the table and that is negotiable (talking about forgiving the debt) but it is certainly not a guarantee. Anyone suggesting it is, should have problems.

    The key to the difference to foreclosures is that a foreclosure is a guarantee that your debt will NOT be forgiven, at least when working a short sale you have some chance.

    NOTHING in short sales in a sure thing.
  • Michael who is the lender?
  • Hi Mike:

    I am a little confused, is the seller not willing to sign the promissory note? If they are not, you only got 2 choices, either get the buyer to bring the funds or get the bank to back of their request.
  • I just got approval today pending the client sign at 16k promissory note with no interest.

    Any idea of how I should proceed?

  • I think that in order to maintain the integrity of our industry, when referring to any "Bill" or "Law" or "Decision" that is passed that the party offering the information include a link to that specific bill. I often hear realtors and lenders confuse the tax consequence and future liability of a foreclosure, with that of a short sale. They are not the same.
  • That bill stopped the IRS from filing against the person for Unearned Income. As far as I know there was not bill preventing the bank from trying to collecting the difference.

    In the "Hardship Letter" to the bank to start the short sale process, the home owner needs to request the debt forgiveness. The bank has the option to accept that or not.
    See related links to what you are looking for.
  • The Bill your referring to is The Mortgage Debt Relief Act of 2007. This Bill has to do with a Lender being able to give you a 1099 after closing for the remaining debt. It has nothing to do with a Lender trying to get you to sign a Promissory Note. Most lenders will try to get the seller to sign a Promissory Note. I had one Negotiator tell me that it is company policy to ask on every short sale they Negotiate if the seller will hold a Promissory note. I'm seeing alot of 2nd mortgage lenders requesting Promissory Notes more and more. For more information on the Bill you can go to http://www.irs.gov/individuals/article/0,,id=179414,00.html Just my two cents!! Joe
  • Hi Greg:

    I am not of any such bill however, if you or anyone else can provide any details it would be greatly appreciated.
  • It was my understanding Bush passed a bill that precludes a bank from going after the short fall. I haven't read the bill, but I would think it is, or will be, short term, and will go away when the market turns.
  • Good point... although there are MANY that are forgiving the debt.
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