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

Posts Tagged ‘deficiency

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


Short Sale – Can I Sell My House If It’s A Fixer Upper?

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Short Sale – Can I Sell My House If It’s A Fixer Upper?

Yes! It doesn’t matter how much you owe. It doesn’t matter what shape it’s in. You can have a leaky roof, old windows, shoddy electrical system and dogs could have chewed up all the door frames.

If the market values have plummeted and you owe more than the house is worth and you’re behind on payments, you should look into doing a short sale.

In a short sale the lender accepts an amount short of the payoff and lets the house sell for whatever the market will pay. If the house is a fixer upper it reduces the value of the house, but since the bank will let it go for the reduced price the house will still sell. In a short sale the lender lets the house sell based on the current value, not based on how much is owed.

If the house sells for less than owed, the difference is called a “shortage” or a “deficiency”. In most cases, but not all, the lender will forgive the deficiency. It is vital that the seller engage the services of a professional Realtor who has a proven track record of successfully negotiating and closing dozens of short sales. A competent and caring Realtor is more likely to obtain a full forgiveness of the deficiency.

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:


How To Choose The Right Short Sale Realtor

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David Halpern Certified Distressed Property Expert CDPE http://shortsalesrealestateagentslouisvilleky.com/

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

Written by davehalpern

April 12, 2010 at 10:16 pm