Explaining "Short Sale":

When a home owner is attempting to sell their home and the loan amount is greater than the value of the real estate, the homeowner must ask the lender if it will accept less than the amount owed.

OR

At the time of sale there will be a shortage of funds to pay off the loan / "Short-Sale"

Explanation:

A home that has less value than the amount owing can happen for a variety of reasons including:

1. decreasing property values,
2. if the original loan was for more than the home was worth during the purchase, or
3. if something has happened to the property to decrease the value (fire, flood, mold, poor maintenance).

A "Short-Sale" is something the property owner must negotiate with the lender. Banks rarely grant permission for a"Short-Sale" however if the homeowner has attempted to sell the property and the only offer is for less than the loan, the bank may consider this option. Banks hate granting "Short-Sales" Why? Because the lender is going to loose money and has numerous regulatory limitations and piles of paperwork if they approve the "Short-Sale." It also means that the lender may have made a mistake when granting the loan. This does not look good to Federal regulators.  Short-Sales must be approved by the lender.  No other party has the right to approve of this transaction and only the homeowner can ask for the approval.

Selling a home via a "Short-Sale" is legal.

Often "real estate investors" want to take advantage of this process by jumping in and trying to get a slice of the homes equity by negotiating a short sale on behalf of the seller...... this is where the problem starts.

In most states it is illegal for anyone to negotiate the "short-Sale" for the homeowner unless they are one of the following:

• An Attorney that has been hired by the homeowner to negotiate on the homeowners behalf.
• A licensed mortgage broker or loan officer.
• A "qualified" housing counselor that is working for a government agency.
• Licensed real estate agent (extensive restrictions apply).

That’s it..... only the people noted above, and this is where the problem starts.

All sorts of real estate "experts" teach classes on how to "Make Big Bucks in Short Sales" or "Make money in Foreclosures." The problem is that unless you are an attorney or mortgage broker, in most states, you are not allowed to negotiate on behalf of someone else. Negotiating on behalf of someone else is called legal representation.

A third party negotiating on behalf of a homeowner, and not being one of the above is considered the illegal practice of law and unless you are an attorney or one of the exemptions stated above, this is a felony in all 50 states.

This is where the scam part comes in. People who are barred from "negotiating for a third-party" (the onwer) jump in and negotiate for the homeowner.  At the end of the process........ was the "negotiation" in the best interest of the homeowner...... or the scammer who obtained title to the property?

Why do investors try and negotiate a "short sale"... .because they want to beat everybody else to the foreclosure auction.   In otherwords....... for the money.

If the person offering to "negotiate," or one of his buddies, is not going to end up with the home, then this may be OK. 

People say they are "helping" homeowners by negotiating a Short-Sale.   However these people are investors, who are trying to obtain a home for less than market value.  Their goal is to convince the homeowner that they can....."help" solve the foreclosure or sales problem.

Second problem

If a homeowner does not have to pay the entire loan balance, there may be large tax consequences to the homeowner.

Why? The debt has been forgiven, which is a taxable event by the IRS. There are all sorts of exemptions but we strongly suggest talking to a qualified tax attorney. Current laws are also being modified sot this second problem is in flux. GET GOOD LEGAL/TAX ADVICE.

Also review the information listed on the "Foreclosure Rescue" page.

#1  Try to sell the property with the help of a good real estate agent.  The agent works for you and is required to help you sell the home to the highest bidder.  The agent is not allowed to purchase the property from you and make a profit.  As long as the agent lists the home, tries to get it sold and does not attempt to buy the home using a Short-Sale, you should be OK.   A good agent can be your best chance at success.

#2   Find a non-profit housing agency that can offer help and information.   For a list of housing agencies in your state go to this link:  Housing Help

#3  Other than a non-profit housing agency, avoid anyone that offers to "negotiate" a short sale for the homeowner.