We’re often asked the question, “Can I pursue a short sale during my bankruptcy”. Lenders can review a short sale offer while the loan is in active bankruptcy. However, to complete a short sale and issue an approval letter, the bankruptcy documents must be filed and approved by the court. Any final agreement will require bankruptcy court approval. Homeowners should consult bankruptcy counsel for information on how short sale programs could affect their mortgage and their bankruptcy case.
Following are answers to frequently asked questions about short sales when a homeowner is in bankruptcy.
Does the foreclosure process continue after a homeowner files for bankruptcy?
When a homeowner files for bankruptcy, there is an automatic stay, also known as a “hold,” of any collection activity, including foreclosure.
Are additional documents required for a short sale when the homeowner is in active bankruptcy?
Yes, two additional documents are needed: a release issued by the bankruptcy court, and an attorney authorization letter from the bankruptcy attorney if the homeowner has a bankruptcy attorney. The attorney authorization should be on the law firm’s letterhead and give your lender permission to speak with the homeowner. It is separate and in addition to your Short Sale Realtor Third-Party Authorization form, which gives the bank permission to speak to the the listing agent and the bankruptcy attorney if they are added to the authorization.
Why can’t a bank approve a short sale while waiting for the bankruptcy to be released?
The bank’s approval must follow the direction provided in the release by the bankruptcy court. Therefore, they cannot issue an approval letter until the bankruptcy court approves the short sale or the bankruptcy case is closed. The file can then be submitted for approval to the appropriate investor(s) and/or mortgage insurance company and follow the normal approval process.
What type of release is required?
Your bank must receive one of the following releases issued by the bankruptcy court:
- Bankruptcy Court Order granting a Motion to Sell
- Bankruptcy Court Order granting a Motion for Relief from Automatic Stay to proceed with a short sale with noted short sale negotiation
- Dismissal of the bankruptcy
- Bankruptcy case closed as a result of Chapter 7 Discharge with Abandonment, Closing Order, Final Decree, and Trustee No Asset Review
Can a homeowner qualify for Home Affordable Foreclosure Alternative (HAFA) relocation assistance while in bankruptcy?
Yes. However, any funds going to the homeowner through state incentives or other relocation assistance programs must be properly disclosed and handled in accordance with bankruptcy law and regulations.
What if the homeowner has already received a discharge under a Chapter 7 bankruptcy?
Unless the court has made the lien on the home unenforceable, a bank or investor with a valid lien can foreclose on the property after the bankruptcy has been discharged. Selling the property in a short sale is one way to avoid foreclosure and settle the lien. Also, because the homeowner is no longer liable for debts that were discharged in the bankruptcy, the bank or investor(s) cannot try to collect any remaining balance on the loan that is not paid off by the short sale.
If you’re facing foreclosure you’re facing some very important decisions. We want you know you’re not alone and we are here to help with any questions you may have to assist you in making the best decisions for your situation. There is no charge for this service and we are happy to help! We offer confidential and professional real estate advice.
The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in; Bexley 43209 Columbus 43201 43206 43214 43215 Delaware 43015 Dublin 43016 43017 Gahanna 43219 43230 Grandview Heights 43212 Hilliard 43026 Lewis Center 43035 Marysville 43040 43041 New Albany 43054 Pickerington 43147 Powell 43065 Upper Arlington 43220 43221 Westerville 43081 43082 Worthington 43235
Using Bankruptcy to Delay Foreclosure or Save Your Home