Short Sale Before or After Bankruptcy

05/14/2014 12:28 PM (CST)

bankruptcy short saleMost homeowners tend to think of a short sale and bankruptcy as mutually exclusive. Both are regarded as some form of the last resort. Oftentimes, homeowners think of a short sale and bankruptcy as a tough choice. If they are in truly tough spot financially with sky-high debt and no job prospect, they will probably consider bankruptcy to be a better option.

If a homeowner sees a chance of their property value rebounding and their debt is somewhat under control, they will probably want to save their house. They’d attempt to do a loan modification first; in case it fails, they will go with a short sale.

Short-sellers, no longer attached to their house, will move on with their live. Most will at least try reining in their debt, looking for employment, etc.

Consumers with a recent bankruptcy on their record tend to be more pessimistic. At the same time, they share disconnect from their previous home and wish to move on with short-sellers.

Some of them are also pretty successful in rebuilding their credit and may attempt joining “boomerang buyers.” However, more and more consumers run into the same problem: their old house is preventing them from moving on.

The problem is that the bank has never foreclosed on the property that they let go. They're relieved financially, because the bankruptcy incorporated the mortgage, but they're still on title to the property.

Worse, there is little that the homeowners can do about it. It's up to the banks.

According to Jim Cardinal, Syracuse Securities Mortgage Specialist, banks are not mandated to foreclose. It's an option they have inside the clause of the mortgage. A lot of these banks have so many foreclosures; they're walking away as well. So it puts these properties in limbo, and these clients in limbo as well.

Furthermore, there's nothing on the credit report to indicate that the property was taken over at this date and it's difficult to find. So going through the county records is a way to find out if the property is actually transferred or staying in contact with the bank that is supposed to be foreclosing on it.

Bankruptcy and short sales are not mutually exclusive. If you’re considering bankruptcy, youshould talk to a qualified attorney and an experienced short sale specialists before you weigh all your options.