I own 3 homes that I am trying to short sell. They have not yet and it’s almost a year. What should I do?

During the real estate boom, I bought 3 homes for investment purposes. Since then, I lost my job and the market crashed to the point where I owe more than they are worth. I have them all listed with a realtor for short sale. I have traffic and people looking, but no offers. I am coming up on a year with this process. Should I hold tight, let them foreclose, or file bankruptcy?

Asked on June 11, 2009 under Real Estate Law, Florida

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

Probably simply walking away from the homes (letting the lenders foreclose) is the worst choice. If the homes are indeed worth less than the loans on them, if you walk away from them, you will hurt your credit rating badly and *still* be legally obligated for the balance due on loans, over and above the homes' value. Plus if you walk away from the taxes on  the homes as well, you could up as a tax cheat.

Whether you hold tight or file for bankruptcy depends on your overall economics, how badly underwater the homes are, the real estate market in your area, etc. There are so many variables that it's impossible to give any sort of definitive answer. However, if realistically you either (a) will not be able to unload all or most of the properties before you run out of money, or (b) even if  you manage to unload them, between how little you might get and what it will cost you to hang on until then, you'll be losing substantially on the proposition, then probably should file for bankruptcy. Obviously, bankruptcy will itself have a significant impact on your credit rating and finances, but it will get you out from under multiple mortgages and protect you from other creditors.

Plus, if you're out of work and your underwater on all your mortgates, you have little in the way of income or assets a bankruptcy court could touch to pay off creditors, so you're probably in a "good" shape to declare bankruptcy; i.e. little to lose. And in this economy, there is little stigma or shame to bankruptcy.

If you think bankruptcy is a realistic option then, get a consultation from a good bankrutpcy attorney right away--waiting, and spending more of your money, then declaring bankruptcy is "worst of all worlds" sort of position. It means you'll still have the negatives of bankruptcy after having struggled to pay. If bankruptcy is the way to go, better to do it sooner rather than later, which will also start you on the road to financial recovery sooner.


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