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    Bankruptcy and Short Sales in Southern California

    For a period of time, Doan Law Firm rarely recommended Short Sales on homes that would be eventually surrendered in conjunction with a Chapter 7 bankruptcy filing.  This was because in the past, there was rarely any benefit to the client.  In fact, short sales years ago created more problems than advantages.

    Times have changed now.  With the collapse of the United States Real Estate market, and increase in short sales, the short sale environment has morphed into a very advantageous tool for the client.  Short sales are thus much more common, move thru escrow much more quickly, and are often preferred by lenders over foreclosure.  More importantly, they are now much more advantageous to a debtor than in the past.

    Accordingly, the position of Doan Law Firm is that a short sale should be investigated in EVERY CASE where a debtor files for CHAPTER 7 RELIEF and has NO EQUITY.   Doan Law Firm takes this position for the following 10 reasons:

    1)More Time In The Home: A short sale can extend the time a client stays in their house.  If a foreclosure is pending or about to go to sale, a short sale can buy several more months if the bank sees an escrow has been opened and they no longer need to foreclose and put REO property on their books.

    2)Reduces Liability To The Debtor: A short sale reduces liability exposure to the debtor.  The debtor can be exposed to many years of liability risks so long as the property remains in their name.  If they have a pool, dangerous condition, fire, etc, all could subject the debtor to liability until title transfers.  A short sale immediately cuts off this risk.

    3)Reduces HOA Fee Liability: Debtors remain liable for Home Owner Association fees post BK until title transfers.  A short sale immediately eliminates all HOA fee exposure.

    4)RFDCPA Claims: A short sale can create Rosenthal Fair Debt Consumer Protection Act claims. This is because banks frequently will report that the house was sold without full payment on the credit report.  This is false due to the bankruptcy which requires a bank to only report $0 balance and discharged in BK.  Thus a client can pursue lenders for monetary damages and receive compensation as a result of any false reportings to credit bureaus.

    5)Refunds to clients.  Doan Law firm refunds 10% of the bankruptcy fees clients pay if they allow our firm to represent them in a short sale.  Thus they could get $200 back if they paid $2k for the bk fees.

    6)Compliance With BK Code: A short sale helps a debtor comply with their statement of intentions in the bankruptcy. If a client states they plan to surrender the property, the short sale can help the debtor comply more quickly with the bankruptcy code’s requirements on debtors.

    7)No Tax Liability: A short sale will not result in any tax liability since the underlying claim has previously been discharged in bankruptcy.  Also, recent federal law protects homeowners from tax liability, regardless of a bankruptcy.

    8) Closure: A short sale will bring closure to the debtor.  No more billing statements or calls, which are remain allowed under the new amendments under the bankruptcy code, 11 USC 524j, despite the discharge.  That new provision allows secured creditors of real estate to contact the debtor for payments after the bankruptcy discharge without violating the discharge order.  A short sale ends this.

    9)Housing Market: A short sale helps the housing market.  This is because the property immediately transfers to a new buyer and is not taken back by the banks as REO property to sit on their books as vacant shadow inventory, which eventually further depresses the housing market.

    10)Protects The Community: A short sale is good for the community since it avoids waste and further housing depreciation.  With foreclosed property, there is frequent vandalism, disease spread by stale swimming pools, unkept yards, etc.  A short sale avoids this with the pride of ownership by the new owner.

    To help accommodate our clients, Doan Law Firm has affiliated with a real estate broker, Alan Shafran and his associate Vince Scuncio, to assist our clients’ needs in the Short Sale Market.  If you have not explored this option, please contact our office immediately for a free evaluation.

    Written by Michael G. Doan–  Owner of the Carlsbad Bankruptcy Attorney Office, Michael also manages his business and is a highly skilled San Diego Bankruptcy Attorney with over 17 years of experience.  Michael is currently concentrating his practice solely in Bankruptcy Law and is a Board Certified Specialist in Consumer Bankruptcy Law by the American Board of Certification, one of only fourteen such attorneys in all of California.  

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