Is BK right for you? Or short sale?

Todd: Hello and welcome to Todd Miller TV. I’m joined here today in the office of Ryan Alexander who’s a prominent local attorney and I just found out also that you’re a Harvard grad.

Ryan: Yeah, thank you.

Todd: So one of the elite.

Ryan: A lot of fun.

Todd: Good, awesome. Perfect. So I get this question all the time. Of course I’m not an attorney but I get the four things that can happen to a person and how it’s going to affect them regarding their real estate and that is whether they short sell it, foreclose, deed in lieu or bankruptcy. They always say like, “What’s going to happen to me if I do one of these things?” What I always say is go talk to an attorney. So let’s pretend they’re sitting here. So start with short sale.

Ryan: OK. So the short sale, the key to a short sale is the short sale contract from the bank. That’s going to have an agreement between you and the bank but the bank is not going to hold you responsible for any deficiency that’s left over after they take the house and sell it.

So it’s going to be in the contract that they’re not going to pursue you for any deficiency and that their loan is going to be completely satisfied by the house sale price that they’ve agreed to accept. But as you know, it’s tricky to get that acceptance approved by the bank afterwards.

Todd: Right.

Ryan: That’s the key to the short sale and why I always tell people the first thing you want to try and do is short sale the house because it will have the least effect on your FICO score although it’s still traumatic. I mean it’s still going to affect your FICO score but it will have the least effect. But as far as your liability, it will take care of the liability afterwards.

Then a second thing I recommend to people is the deed in lieu foreclosure that you recommended. What that is, is instead of selling the property for the bank, it’s an agreement where you’re just going to give the house to the bank and walk away and again the deed in lieu with foreclosure paperwork has language in it that says we’re not going to pursue any deficiency against you.

So it’s not a bad resolution and in fact, two years ago, three years ago, it was the first thing I told people to do, to try and get a deed in lieu foreclosure because it saves you all the grief of trying to short sell. You just turn around and say, “Hey, look, take it back and forgive me the debt.”

Unfortunately, now that values have gone so far down here in Clark County, banks are not as willing to do that and we’re finding a lot less success lately with offering or requesting a deed in lieu of foreclosure. Most banks then turn around and say, “Well, try and short sell it first because we don’t want to just take it back.”

Todd: That letter that they get with the short sale, it typically comes toward the end, like of the process which can be a long time, six to eight months.

Ryan: Yeah.

Todd: You tell me this is a good idea but one of the things we’ve always done is for our sellers that are doing a short sale, in the purchase agreement, we always have to negotiate that even though the seller is saying they’re going to sell the house, if they get that letter and they don’t like it or if they come to you and there’s going to be bad stuff happening to them that doesn’t work for them and it’s better for them to just let it foreclose for some reason, that this seller can get out of the contract with a buyer.

They have this provision that if they don’t like the terms of that, they can just say, “Hey, you know what, I know we agreed to sell at this price but now the banks are really going to do this bad thing to me and I would rather not have it happen.” Is that something you think is reasonable?

Ryan: Yeah, and you definitely need those protections because what you see too is that unfortunately with both the short sale process and the loan modification process, is that as the loan paperwork gets passed around different departments of the bank or it’s being reviewed by a different person or it’s Wednesday rather than Tuesday, they will turn around and deny the paperwork that they had previously approved.

So you need those kind of backups for the buyer in order to manage that and for the seller because the seller sometimes is not able to complete the sale because of the bank changing its mind on the short sale agreement.

In fact one of the things with the short sale agreement in most of the agreements, it tries to be a contract that’s not a contract by saying, look, this isn’t binding to us. It’s not for the bank. It’s just we’re letting you do this.

So the buyer has to appreciate that as well that the seller offer doesn’t have control of the short sale approval and then it gets even more complicated if there’s two mortgages and if there’s two banks not holding the same loans. Both banks have to agree to that. That’s where it gets a little trickier for the short sale process.

Todd: OK. Now, obviously bankruptcy, there’s a lot of complexities to it. So let’s just – like some bullet points between a person just letting it get foreclosed and bankruptcy to relieve the debt. Tell me what some of the like bullet points, like advantages of one versus the other.

Ryan: Well the advantages of for example a chapter 7 bankruptcy which is what we call liquidation bankruptcy. Now in a chapter 7 bankruptcy, you can keep your home and in Nevada, you can have up to $550,000 in equity in your home.

So you can even own a home free and clear and still file a chapter 7 bankruptcy here in Nevada. But what we find is that if your house is upside down, it’s not worth keeping.

Todd: Right.

Ryan: So we can return the house no matter what the loans are with no debt left over. So for a home owner who’s considering that, you could have two loans or even three mortgages and if you have a third mortgage to buy a pool or put in something else, it’s really difficult to short sale it. It’s almost impossible and the banks are not going to approve a deed in lieu foreclosure either because they’re going to have to pay off the second and third.

So looking at bankruptcy, it gets rid of all the liens of the property and your obligation to them and gives back the property. Then one of the other things that really helps people is that it gives you a time. Usually two months at the very, very minimum if they’re being really aggressive but typically three to six more months in the property where you’re benefiting from the state of the bankruptcy court that your creditor can’t evict you or take back the house and you can save up a deposit for the next house or wherever you’re going to live. It would be buying a house which we’re going to rent [0:06:52] [Phonetic]. So it gives you that breathing room and that’s the strength of the bankruptcy court, to give you that breathing room and the forgiveness and you move out and you can just set that behind you.

Todd: Is it important that that bankruptcy be filed before the foreclosure happens?

Ryan: No. Well if you want to stay in the property, it’s most advantageous but even if you’re still a tenant in the property and it has been taken back by the bank or [Indiscernible] through foreclosure, you could still stay in it because they can’t evict you.

Todd: Right.

Ryan: Even if you’re a rental tenant, they can’t evict you during the bankruptcy unless they do a motion to ask the court and even if we don’t close the motion, it’s still time-consuming. It takes two months or so to get approval from the court and then to continue eviction.

So I usually tell people, “Let’s file before the foreclosure. You have to come and see me at least a week before the foreclosure,” although we do file night before, 10 o’clock the night before type of emergency filings to stop a foreclosure. But we prefer to have it a couple of weeks ahead of time, plan it out, file it.

It will take the foreclosure off calendar and then they can’t do anything until the bankruptcy court either approves the continuation and resetting of another foreclosure date or the bankruptcy is over six months later and then they continue the foreclosure.

We have people who filed a year ago and they’re still in their homes waiting, even while after the bankruptcy is done. So in every situation, it depends on the bank and what their intention is with that property and whoever is handling the paperwork that day.

Todd: If somebody wants to talk about their specific situation regarding their property or anything dealing with bankruptcy, how do they get in touch with you?

Ryan: They can call me at 868-3311 and I will set up a consultation with them or they can email me at  HYPERLINK “mailto:info@RyanAlexander.us” info@RyanAlexander.us and I meet with everyone personally for a consultation. We’re going to go through a small questionnaire. I’m going to give you some paperwork that will explain some of your rights and some of the things that bankruptcy can and can’t do for you. You will decide from there what you want to do and how this can work for you.

Oftentimes, people will come in and I will tell them, “Look, go look at a short sale first.” You’re six months ahead of this or you’re even a year ahead. Go look at a short sale. If that doesn’t work, then call me.

Todd: Free consultation by a Harvard law grad. Sounds like a pretty good deal to me.

Ryan: I can change the price on that but we do occasionally give free cookies and water.

Todd: I like that. All right. Well, thank you very much.

Ryan: All right. Thanks Todd.

Todd: I’m very appreciative. That’s the episode for today. Don’t forget you can subscribe to the RSS feed and get updates every time. You can also follow on Twitter, @LasVegasTodd and that’s the episode for today. Thanks for tuning in.