The Petalumahomes.com Realty WebLog

It’s Tuesday morning and I’m sitting in “Aqus Café” in the Foundry Wharf district of Petaluma, reflecting on my last appointment on Monday afternoon. The appointment was with one of my kid’s friend’s parents from his High School days. Our kids played sports together and we became pretty good what I call “school parent friends” for about 4 straight years. But time marches on after they all graduated are lives parted except for the occasional run in on the street. They were a really fun couple who were part of a small die hard group of parents, who came to every game rain or shine, who gave the most money and time in all the fund raisers, and who we commiserated with when are kids won or lost their games. At that time they seemed happy and financially secure struggling no more or less than the rest of it and us was pretty much all-good.

Well there I was yesterday afternoon ten years later standing with Elaine and Michael (not his real name) in a vacant home. When I last saw Michael he was tall viral athletic man from hi former days of sports and someone who always came with a positive and fun personality. If it hadn’t been for that same Great Spirit I would have barely recognized him. He was of course older but he had lost 70 pounds and clearly due to a health issue not by choice. I commented “wow” Michael you really lost some weight. Well it’s not hard he said when your fighting a disease but all is good now. What a spirit and after some small talk I ask him to tell me how we can help. He told me how he is living in an apartment now since his divorce two years ago, we were not even aware of that. After 32 years of marriage they decided it was over and they went there separate ways. He wasn’t sad really, at least not anymore and told me how he was proud to have raised a great family and marriage for those years and this is just part of life. Each day you just work with what life deals you and he said. He said between the divorce and his health they had to refinance the home several times and they eventually couldn’t afford the payments. His wife had a home business that never fully got off the ground so he supported for a long time but with having to miss so much work when he got sick it just snow balled on them. Michael was a top salesman in his field but when he finally was able to get back to work he was just in time for the crash in the economy as it heads into this serious recession were all in. He needs to sell the house but owes way more than the current value and has heard about short sales and wants to know if that is a way out for him. He has received his notice of default and if possible he wants to avoid a foreclosure to protect his credit score. In his sales business he deals with buyers credit daily so he knows how important and valuable of a good credit score. He takes for a walk thru his home tells me of all the things they did to improve over the last fifteen years of ownership and does so with pride yet with a sense of acceptance that that was then and this is now. After the tour I begin to explain to him the pros and cons of a short sale and how many times from a financial perspective it is almost better sometimes to just let the house go to foreclosure. I have had dozens of conversations with lenders and not one of them can tell me whether a having a short sale versus a foreclosure on your credit report is better or worse. Mostly because this is first time in history that we have ever had this many foreclosures and short sales. Not even in the depression even by percentage has there been this many. Like all my clients I explain how serious of an issue as to which way to go. On short or foreclosure depending on condition the will or has the right to come back to former borrower/owner and file a Deficiency Judgment which is a Court order authorizing a lender to collect part of an outstanding debt from foreclosure and sale of the borrower’s mortgaged. This can be huge; in most cases lenders are loosing at least $100,000 per foreclosure. Many I have closed this past exceeded $150,000 in loan loss to the bank. In the event of a former borrower/owner getting a judgment this could mean having being sent a 1099 from the IRS for the year of sale for $100,000. At that point the owner could be liable for taxes due on that amount as if it was earned income or capital gains tax. Now this is where I am out of my expertise and I require all my sellers who want or need to attempt a short sale or foreclosure to meet with an attorney who understands the laws. And depending on the type of loans they have on their home and if they refinanced makes a big difference. The second meeting they must have after the attorney is a C.P.A. Depending on the situation Elaine and I have paid on behalf of our clients so the client is fully aware of the consequences. I can tell you for sure that over the next few years there will be some horror stories coupled with lawsuits regarding short sales and foreclosures that will arise. And if the real estate broker and or agents did not guide their clients properly they will be named in the lawsuits. Well we ended our meeting with a set time for us to meet further and schedule the legal counsel appointment and CPA to determine what will be our game plan, short sale or foreclosure. Sad to only have only these two options but in this case that is all there is.

..Too be continued.