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Short Sales

What is a Short Sale?

A short sale is the sale of real estate where the owner owes more to the bank than the property is worth. Homeowners who are experiencing a financial hardship often turn to a pre-foreclosure sale to avoid foreclosure or bankruptcy. On the other end of the spectrum, many investors are anxious to buy almost foreclosed properties because it can be a bargain.

At McFarlin LLP, our Los Angeles short sale attorneys want you to know your rights and options when it comes to real estate. The more you know, the better you can avoid financial harm. Below, we provide needed insight into how they can either benefit or harm you. For more answers to your questions, call us at (888) 728-0044 for a no-cost consultation.

The Buzz about Short Sales

Bookstores are full of books about “buying a short sale at discounted prices.” An equal number of websites promise bargains or promote “foreclosure lists” for a fee. In reality, there is also a high price to pay. The process of locating, buying, and working through the legal and emotional complications is not for everyone.

Benefits of Selling a Home with a Short Sale

There are many benefits to selling your house rather than foreclose. We have outlined a few of the main benefits of selling your house as a foreclosure alternative. Depending on your own specific situation, the benefits can be significant.

  • Working out an arrangement with the lender avoids any legal action by the lender later.
  • Often, the property value is so far below what is owed and it becomes clear that value may never come back.
  • Both homeowners and lenders get a fair price for the property and liquidate a declining asset.
  • Avoid foreclosure, stay out of public record filings.
  • Possibly avoid bankruptcy.
  • Wrap up a bad investment with no loose ends or lingering liability.

Benefits of a Short Sale for a Home Buyer

Many investors assume that the very status of a property as a “short sale” home listing makes it a bargain, this is simply not true and a dangerous approach to real estate investing. The benefits for a buyer are determined by the particular transaction, not some formula or universal criteria.
If you are interested in buying a pre-foreclosed home, it could prove to be a lucrative and rewarding experience. This is especially true when you hire a professional to make sure that you avoid making the common mistakes that most investors make. McFarlin LLP has an in-house brokerage Clear Point Real Estate Service, which can assist you with every aspect of buying a short sale house.

What are the Challenges

Knowing the difficulties that you can face during a sale is just as important as knowing the benefits. Understand the challenges you may face, and be prepared so you can find success.

  • The home has decreased in value since the last sale, and may be in a declining market.
  • The property is sold “as is” without any representations or warranties from the lender, so a thorough inspection is advisable.
  • It can take much longer to close the transaction because the lender must approve all aspects of the deal.

Investors should be aware that lenders typically refuse to pay for common items such as:

  • Suggested repairs on a home inspection
  • Pest control (even if it is determined the home has such problems)
  • Roof certifications or roof repairs
  • Home protection plans
  • Deferred maintenance

Real Estate Agents & Short Sales

If you think a pre-foreclosure sale might be right for you, it is critical you work with the right professionals. Real estate agents are paid only on short sales that actually close, which can create a terrible conflict of interest if closing the sale would not be in the homeowner’s best interest. Frequently, lenders ask homeowners to sign a promissory note or specifically agree to liability after the transaction closes. Closing a pre-foreclosure sale on these terms actually leaves the homeowner worse off. Only a qualified real estate attorney can give you legal advice and fully represent your interests.

Navigating Tax Issues

It is important to talk to your tax advisor, or work with an attorney, before selling your property due to potential tax repercussions. The IRS considers the difference between the value at which you sell your house, and the balance on the mortgage as “income,” unless directed otherwise. Most pre-foreclosure sale sellers can close the transaction without owing any additional taxes, but the deal must be structured correctly. Again, only an attorney can give you legal advice and fully protect your interests.

For more information about your rights in real estate transactions, call McFarlin LLP at (888) 728-0044. A consultation from our legal team can help you make the right choices in your sale or purchase.


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