Answer:  - The least expensive thing to do is file bankruptcy. It will cost him $1500 and he can start over from scratch. A lot of lenders, when you tell them you are going to file, will work with you to find a solution. A better option might be to get an attorney or good real estate agent / short sale negotiator to help you push the short sale through with a full satisfaction meaning they can’t ask for any money to be paid back. The loan would be paid in full. Your son would receive a 1099 which would be negated with form 982 as mentioned. Don’t let the bank push you around… unfortunately they deal with homeowners a lot differently than an attorney or 3rd party negotiator because they automatically assume the homeowner doesn’t know what they are doing.

Answer:  - Well, technically they can come after you for whatever is not satisfied. If the short sale is approved and successful, the individual doing the short sale will need to make sure it “satisfies” the loan in which you will receive a 1099-c. If they don’t satisfy the loan, then the bank retains the right to come after you for the deficient amount.

There is actually another option, similar to a short sale, but takes half the time, allows you to stay in the home or (be able to actually sell it in this case) for a profit. We basically get rid of the $150,000 second mortgage by offering a settlement with the lender. The loan is completely satisfied and it never shows up on your credit like a short sale does. Just another option out there for you to think about.

Answer: -Absolutely… you should always try to work something out with the bank. They may not make you pay the full amount but will require you to pay something in most cases.

Answer:  - Most of the time banks won’t come after you for just legal fees, if they come after you, they will file a judgment for the amount they lost because it costs them a great deal more to pursue someone for a deficiency. So unless they are confident you can pay, they typically will 1099 the homeowner instead. And if you’re like most homeowners, the debt relief act will counteract the 1099 or you could claim insolvency. Best to talk to you accountant if you have specific questions.

Answer: – Unfortunately yes… and it makes no sense at all because if it goes to foreclosure the 3rd gets nothing because no one will bid more than what it appraises for.   And if they don’t agree to satisfy or release the lien, then it will continue to go to foreclosure.  So you have to be persistent and prove to them again and again that what they are asking for is unrealistic.

Sometimes lenders will have 3rd party collection agencies handle the negotiations once it passes a certain time frame.  This is typically when you’ll find a great deal of resistance and difficulty in negotiating the price you want.  These collection agencies tend to be very unrealistic in their requests.  We had a situation where they were being so unrealistic that after 6 months of negotiation and getting no where, we complained to the lender and told them how unprofessional, rude and dishonest this collection agency was.  So they pulled the file from them and we were able to get the short sale approved and completed in less than 30 days.

So don’t give up, be persistent, stick to your offer, make them see that they are being ridiculous in what they are asking.

Answer: – Yes they can… Many times mortgage companies will have 3rd party collection agencies deal with negotiating payoffs.  If they don’t like the offer they don’t have to accept it.  Sometimes they can very difficult to work with.  They only way is to either give them what they want by handling it outside of closing or negotiate with them more until they decide to accept.

Answer: -Absolutely…a lot of being successful in this business is your ability to negotiate.  Your ability to negotiate and negotiate well literally will make you thousands more or cost you thousands.  If they countered with a higher price, this means they believe the house is worth more than what you proposed in your offer.  You will need to explain to the lender why you believe it’s not worth that and you’ll have to back it up with comps, repair costs, market conditions, pictures, etc.  You may need to even ask for another BPO (Brokers Price Opinion).  Now…if it’s only a few thousand dollars and your end buyer is all lined up and as it is you stand to make a large profit from it, you might want to consider just doing the deal and moving on to the next one.  You don’t want to wait another 2 months before they accept your offer because you might lose your buyer.

Answer: -Tom, I have to make the assumption that you’re planning on or you’ve already stopped making payments on your home or you wouldn’t be asking these questions.  A short sale in my opinion is by far the best option if you can’t sell your home for what’s owed, rent it out or can’t work out something with the bank like a forbearance or loan modification.  A short sale will affect your credit but will eliminate a foreclosure on it.  If done properly will also eliminate the possibility of a  deficiency judgment.  If a short sale is not accepted an ultimately your home ends up at the foreclosure auction, then you will either receive a 1099 or they will file a deficiency judgment against you.  If they file a deficiency judgment and you can’t pay, they can garnish wages.  Depending on the amount of the judgment, this forces most people to file bankruptcy to eliminate the judgment.

Answer: -No.  Bankruptcy only postpones an auction or short sale which buys you more time.  In fact, many short sale investors will use bankruptcy as an option if they need to buy more time so it doesn’t go to auction, as long as it’s in the best interest of the homeowner.

Answer: -55% is a lot, but may not prove financial hardship, unless you’ve had a loss in income or increase in bills or something like that.  You can short sell you home to anyone you want as long as they are not related, but you also risk not getting the short sale approved in which then your home will go to auction and then the 2nd may file a judgment against you for the amount they lost.  But if that’s your best option then, yes a short sale is a great route to go.  I would definitely seek help from an agent if you need to find some buyers…or investors in your area would probably love to do a short sale on them.