It is important to educate yourself on the dynamics of a short sale. Below are several tips that will help you make the right moves down the road.
1. General Tennessee foreclosure law information.
Tennessee is a non-judicial state. Non-judicial foreclosures are processed without court intervention, with the requirements for the foreclosure established by state statutes. When a loan default occurs, the homeowner will be mailed a default letter, and in many states, a Notice of Default will be recorded at approximately the same time. If the homeowner does not cure the default, a Notice of Sale will be mailed to the homeowner, posted in public places, recorded at the county recorder's office, and published in area legal publications. After the legally required time period has expired, a public auction will be held, with the highest bidder becoming the owner of the property, subject to their receipt and recordation of the deed. Auctions of non-judicial foreclosures will generally require cash, or cash equivalent either at the sale, or very shortly thereafter.
Deficiency judgments in the state of Tennessee ARE POSSIBLE, and in my cases they are considered a practical process by the banks.
For more clarification on foreclosure laws in the state of Tennessee, please consult a real estate attorney. If you don't know a real estate attorney, feel free to contact us and we can provide you with some referrals.
2. Misrepresenting tax consequences.
Although it’s true that the federal government passed a law in 2007 directing the IRS not to count mortgage debt forgiven by a lender as income, the provision is limited. It applies only to purchase money; it doesn’t apply to debt on a cash-out refinancing, and it doesn’t apply to second homes. There’s also a dollar limitation, albeit a generous one ($1 million for married couples filing separately, twice that for joint filers). "A lot of associates are telling people there are no tax consequences," says Lance Churchill, a short sales specialist and trainer who operates in Boise, Idaho, and San Diego. "But it’s a limited law and you just need to be accurate about it." Click on this link (www.irs.gov/individuals/article/0,,id=179414,00.html) for more details.
3. Possible inappropriate lender requests for seller contributions.
It’s not uncommon for lenders to go after money that the sellers have in the bank or in a retirement account before they approve a short sale request. They’ll sometimes seek to put the onus on the real estate practitioner to get sellers to sign over a note for the amount they have in the bank as a condition of sale. But in states where mortgage debt is non-recourse, lenders have no right to the money, and associates that suggest otherwise to the sellers might be later sued for negligence. Tennessee is a NON-RECOURSE state.
4. What you should know about short sale "investors"
These third party companies or individuals advertise themselves as being able to negotiate a short sale on the seller's behlalf. They claim that they act in the seller's best interests by helping them avoid a foreclosure. The reality is that the only interests they have is their own.
What these investors do is submit a contract with a "lowball" offer to the seller's mortgage servicer with them acting as the buyer. They then list the property with a real estate agent at a higher price with the intention of finding a second buyer for the property. How this process starts moving away from "acting in the seller's best interests" is when the investor is able to get the seller's lender to approve the short sale at the "lowball" price. The investor will not commit to closing on the purchase until a buyer has been found at the higher price. Many times, this takes several months. In the meantime, the seller could be getting further behind on their mortgage(s) or may even be facing a looming foreclosure date. The seller also runs the risk of having the short sale approval expire. The difference between the investor's purchase price and second buyer's purchase price is the profit the investor will receive when both transactions close. The investor will wait to close the same day as the end buyer, and therefore never needs to commit any of his or her capital to complete the purchase.
Mortgage lenders consider this process to be fraudulent because in most cases the seller's lender has no idea there is a second buyer committed to a higher purchase price. As a result, the seller's lender is most likely taking on a bigger loss than they should. In the end, this process is highly unethical and is not a recommended option.