[quote=urbanrealtor][quote=paramount]FB’s for the most part should take the advice of Brent White (University of Arizona Prof) and walk away. No short sales (to much liability after the sale) – just foreclosure.
Freddie Mac spokesholes state there is a moral dimension to foreclosure – I say BS, it’s only a legal issue and that’s it.[/quote]
I agree about the legal and money issue being the only real dimensions on this (though many people get emotional). However the argument that the REO has less liability is not accurate most of the time here (in CA).
Most short sale lenders will explicitly forgo the deficiency and forgive the rest. It is to there advantage to do so because it gives an incentive to sell short which is less expensive than REO. The ones that won’t usually can be scared off.
Between the law and short pay agreements, very little liability exists for the FB’s who sell.
At least in my experience.[/quote]
From a recent NC Times article:
So, in a short sale I’m still on the hook for my debt, my credit score gets killed, and I might get a huge tax hit? Why am I not just abandoning ship?
Certainly everyone else wants you to short sell: The buyer is hoping for a good deal on a house, the lender gets rid of the property faster and more cheaply than it would through foreclosure, and the various real estate professionals get to collect a fee or a commission. Plus there’s the societal pressure against walking away from an obligation, which, truth be told, you agreed to.
But Brent White, an economist at the University of Arizona, argues that staying in an overvalued house is fundamentally irrational. He writes in a paper titled “Underwater and Not Walking Away” that lenders exploit fears of a bad credit score and cultural mores against foreclosure to keep people in houses.
“This imbalance is exaggerated by the credit reporting system, which gives lenders the power to threaten borrowers’ human worth and social status by damaging their credit scores —- scores that serve as much as grades for moral character as they do for creditworthiness,” he writes.
Many homeowners in trouble may be better off taking the plunge into foreclosure.
But the point is that short sale does not necessarily provide all the protections that come with a foreclosure. Just when you think you’ve righted the financial ship, they may come after you.
