Dave Halpern Louisville Short Sale Expert (502) 664-7827

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Can a Foreclosing Lender Take The Borrower’s IRA or 401(k) in a Short Sale?

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The summary answer is “NO”. A short sale is a voluntary agreement between the short sale lender and the borrower who is the selling the property for less than owed. The borrower is not obligated to accept the terms of the short sale or any of the lender’s demands.

Likewise, the lender is not obligated to agree to a short sale.

If the short sale lender stipulates that the seller must cash in their protected retirement fund and contribute it at closing, the seller should consult professional legal and tax advisors. The owner of a 401(k), IRA or other retirement device has both rights and obligations.

The SELLER Does Not Have To Agree To Anything – It is a Choice!

If the lender wants the borrower to break open their retirement fund to contribute towards the shortage, the borrower can refuse and opt for other courses of action including but not limited to foreclosure, bankruptcy or a variety of loan modifications.

Likewise, The LENDER Does Not Have To Agree To Anything – It is a Choice!

If the borrower refuses to bring their retirement funds to the real estate closing then the short sale lender needs to make a business decision if it’s better for lender to lose more through foreclosure or if the borrower files bankruptcy.

Here are some specific questions that the seller should ask a lawyer and/or tax professional:

  1. Is it legal for the lender to demand the borrowers break open their retirement account?
  2. If the lender obtains a deficiency judgment, is the retirement fund protected?
  3. If the borrower files bankruptcy, is the retirement fund protected from creditors?

With all that said, here’s an actual case study of a successful short sale we closed in Louisville, Kentucky:

  • Debt over $200,000
  • Highest offer $172,000
  • Seller, single mom, had $40,000 in her 401(k)
  • The lender wanted $10,000 seller contribution, told her to use her 401(k) which after taxes and penalties would leave her with almost nothing, especially after tough separation and divorce
  • Long story short: Seller said no, would rather file bankruptcy, lender backed off, short sale closed with lender waiving the deficiency.

Sellers should always seek the advice of professionals; Real estate agent who specializes in short sales, CPA or tax attorney and a bankruptcy attorney if the seller deems it necessary.

Dave Halpern

Louisville Short Sale Expert Realtors

If you owe more than your house is worth and you’re struggling with payments – please call Dave for short sale help (502) 664-7827

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Divorce, Foreclosures and Short Sales in Louisville, KY – Mistakes to Avoid

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Some divorce decrees or mediation agreements contain orders about the house that are impossible to fulfill. These orders sometimes further escalates the problem causing further stress, monetary damage and damage to the parties’ credit. Some court orders are doomed to fail, causing a spouse to be in non-compliance with a judge’s order.

My name is Dave Halpern, a Realtor and Broker in Louisville, KY. I specialize in preforeclosure short sales and close dozens of short sales each year. I have helped many sellers in a divorce situation and have encountered problem situations that could have been avoided.

Divorce attorneys, mediators and judges often make well intentioned yet fundamentally wrong decisions regarding disposition of the house. 

The two most problematic orders that I have seen are:

  1. Spouse 1 must refinance to take spouse 2 off the loan.
  2. Spouse 1 must sell the house by certain date.

The problems with refinancing:

  1. The spouse’s credit may not qualify them to refinance
  2. The house may not appraise high enough
  3. The interest rate may make the loan unaffordable

The problems with selling the house:

  1. In many cases there is too much owed on the house
  2. House values significantly declined, making many houses unsellable
  3. The court appoints a Realtor who may not be an expert in liquidating “upside houses”.

A divorced seller recently contacted me in a state of panic that she is about to be thrown in jail for contempt of court because she couldn’t sell her house. A quick analysis confirmed that she owes too much on her house and the only way to sell it is through a short sale. She took my analysis and explanatory material to court to stay out of jail.

A short sale occurs when the lender is willing to accept an amount short of the payoff. If done properly and professionally  the lender forgives the shortage. This however could trigger a tax bill which sends the divorcing parties back to court to get the responsible spouse to pay the other spouse’s tax bill.

If the lender requires to keep the borrowers obligated on some or all of the shortage, the parties find themselves back in court fighting over who is responsible for the shortage.

Since a short sale hurts the borrower’s credit, how does one spouse hold the other responsible for the intangible financial damage due to a lower credit score?

All these issues and more need to be accounted for in the original court order. Divorce attorneys need to protect their clients by understanding the real estate market as it pertains to foreclosure, preforeclosure and short sales. Divorce attorneys should seek training on short sales and consult with Realtors who specialize in short sales. Agreeing to impossible terms that cannot be implemented can land their client in significant financial and legal hot water.

David Halpern is a Real Estate Agent and Real Estate Broker in Louisville, Kentucky. The name of Dave’s Realty Company is Louisville Short Sale Expert which reflects his total dedication to helping homeowners avoid foreclosure by procuring a short sale.

Dave successfully closes dozens of short sales each year in Louisville, Kentucky. Dave has helped many homeowners avoid foreclosure and bankruptcy by skillfully procuring a short sale for them. The seller has zero out of pocket costs. The foreclosing lender pays all closing costs and commissions on behalf of the seller. Many Realtors in the Louisville area refer and outsource their short sales to Dave, due to his extremely high success rate.

Dave is accredited by the Commonwealth of Kentucky to teach other Realtors the complexities of short sales. Hundreds of Realtors have attended his courses.

More links and blogs from David Halpern:

http://www.LouisvilleShortSaleExpert.com

How To Choose The Right Short Sale Realtor

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 Dave can be reached at (502) 664-7827.