Since home values dropped so dramatically during the mortgage crisis, more and more homeowners want to know if they can complete a short sale after filing for bankruptcy. The answer is yes, you can short sell your home while in bankruptcy. Because a short sale involves a property with no equity, neither the bankruptcy trustee nor your creditors should have any objection to the sale. For Chapter 13 filers, a short sale can mean avoiding a deficiency claim that has to be paid through the plan. For Chapter 7 filers, a short sale might help with qualifying for another mortgage loan faster. If you are behind on mortgage payments, an experienced Morris County bankruptcy attorney can explain the various avenues for keeping or letting go of your home, including all available bankruptcy options.
What Is a Short Sale?
A short sale is when the proceeds from a real estate sale fall short of paying off the mortgage debt. To do a short sale, the mortgage lender must be willing to accept less than what is owed. Otherwise, you may need to consider surrendering the property through bankruptcy.
Benefits of a Short Sale
Some potential benefits of short selling your home outside of bankruptcy include:
- Avoiding a foreclosure on your credit report
- Becoming eligible to buy another home under Fannie Mae guidelines in two years
- Getting to meet the new owners
- Feeling better about selling your home instead of losing it to foreclosure
Oftentimes a short sale becomes unnecessary when a person decides to file bankruptcy. In some circumstances, however, a short sale may still be beneficial. For example, a short sale might be a good idea if you are planning to buy another home in the near future, or if the deficiency balance will result in increased Chapter 13 plan payments.
Drawbacks of a Short Sale
Some of the potential drawbacks to short selling your home are:
- It remains on your credit report for up to seven years
- You may be required to submit personal records to the lender, such as tax returns and bank statements
- You’ll have to show your home and keep it in spotless condition until an offer is received
- There is no guarantee the bank will accept the short sale offer
You may also have tax consequences if the lender agrees to forgive the deficiency balance. If you surrender your home through bankruptcy, however, you will not incur any tax liability.
To learn more about short sales and bankruptcy, or to find out how you can save your home in Morris County, contact a knowledgeable Morris County bankruptcy lawyer with experience in New Jersey foreclosure mediation.