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Who takes the loss when a home is short sold? The bank or the homeowner?

My brother is trying to short sell his home and he's telling me that the difference between what he owes and what it's sold for are going to be a loss to the bank. I'm just wanting to make sure he's understanding correctly, because it kinda sounds too good to be true to me. Knowing him, there's probably plenty of details being left out here. I know it hurts credit ratings, but other than that I'm clueless. Does anyone know any more about the deal with short sales?

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Asked by Elsasmom at 3:13 PM on Mar. 12, 2009 in Money & Work

Level 5 (73 Credits)
Answers (5)
  • It doesn't hurt ur credit ratings. The banks wil sometimes do a short sale to prevent foreclosure. Its the banks that lose out. But they lose even more if it goes to foreclosure but its not a guarantee that it will sell either. But no the homeowner doesn't lose money the bank is agreeing to sell the house for what its worth instead of what's owed.

    Answer by calliesmommie at 3:20 PM on Mar. 12, 2009

  • the homeowner in cap.gains on tax return in the year home was short sold. Bush supposedly signed into law that yrs 07,08 &09 foreclosed or short sale would not fault the former home owner. i hope obama makes it 10,11,12,13... Everyone thinks the banks got skrewd the worst in this recession beginning but it's the American workers that lost their jobs to out-sourcing, war, natural disasters, etc. Who gives a crap if a bank will give you a great rate if you can't qualify after having perfect credit for 30+ years & losing it after a messed up economy.

    Answer by aajsluckymommy at 3:21 PM on Mar. 12, 2009

  • Yes, the bank or bank(s) takes the loss. Hence the reason short-sales take so long. First the seller must accept an offer, but really that step is pointless because then the offer goes on to the mortgage company or companies and they either negotiate, accept, or decline the offer. We've been waiting for 1 1/2 months on a short-sale right now because the sellers have two mortgages out on the home and even though the bank isn't stuck negotiating our offer they are negotiating between themselves with who is going to get how much since the loss on the home is going to be $125,000. Not only that, but most of these banks have many different shareholders who have an investment in the home, so each and every one of them must also agree to the offer since it's not "one" individual or "one" company taking the hit, it's several. The process is a long one and not fun to wait out, but if you make the right home work you can save $$$$.

    Answer by MommyToSmeech at 3:23 PM on Mar. 12, 2009

  • The mortgage holder can go after what is called a deficiency judgement, wherein it sues your brother for the difference.


    Answer by Della529 at 3:27 PM on Mar. 12, 2009

  • Thanks for the link, Della, I'll make sure he's aware of that.

    Answer by Elsasmom at 3:35 PM on Mar. 12, 2009

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