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

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

HAFA orientation video from NAR – National Association of Realtors

If you are “upside down” on your mortgage in Louisville, KY you should seriously consider a short sale. In a short sale, your lender accepts an amount short of what you owe them. It is important that you select a Realtor who has successfully completed dozens of short sales. Your Realtor should also be current on the changing government and banking industry rules related to short sales.

Here’s a link to an overview VIDEO of the new HAFA short sales rules that went into effect on April 5, 2010: http://link.brightcove.com/services/player/bcpid1465406675?bctid=75779465001

There is still much confusion about the new HAFA rules. I will continue to present blog posts with quality information on the alternatives to foreclosure. Please subscribe to this blog to stay updated.

Thanks,

Dave Halpern, Broker

(502) 664-7827

Please check these testimonials from satisfied clients https://davehalpernlouisvilleshortsaleexpert.wordpress.com/category/david-halpern-testimonials/

http://www.LouisvilleShortSaleExpert.com

How to choose the right Short Sale Realtor http://shortsalesrealtorslouisvilleky.wordpress.com/2010/03/21/short-sales-in-louisville-–the-right-realtor-makes-all-the-difference/

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David Halpern Helps Homeowner Avoid Foreclosure!

David Halpern negotiates a short sales to help this homeowner avoid foreclosure!

After being faced with losing our home and still owing more than our house was worth, Dave Halpern and his experienced staff gave us options we never knew existed.  “Your New Home Today” kept us from foreclosure and saved us from more than $30,000 in debt.

David Halpern has helped many homeowners avoid foreclosure. Dave can be contacted at (502) 664-7827 or through website www.LouisvilleShortSaleExpert.com. Please call any time – we love to help!

Family Feels Blessed Thanks To David Halpern

This family was stressed financially and trying to sell their home. David Halpern was able to help them!

Our experience with Dave, Hope, and Kim has been great.  After hearing of our pending foreclosures, as first time homebuyers we were devastated with the loss of our first home.  Unsure of what to do and where to go to remedy our situation, a friend referred me to a realtor.  After reviewing the situation, the realtor thought it would be in our best interest to contact someone who knew more.  After speaking with Dave, we knew we were in great hands.  He was thorough and sensitive to what we were going through.  His staff, Hope and Kim, were equally as wonderful.  He kept us up to date with any information needed to progress.

Understanding that this has been trying, we feel hat we have been blessed with this option available to us.  We were given the best chance at a new start thanks to Dave, Kim and Hope.