Short-Sale Myths That Hurt Claremont Owners

Most of the damage in a distressed housing situation is done by a small number of confident, wrong beliefs. They are worth naming, because each one has a characteristic cost.

Myth: calling the lender starts a foreclosure

It does not. Delinquency and the notices that follow it advance a file. A phone call to ask about options does not begin anything and does not waive any right.

The belief is expensive because it produces silence, and silence is what closes doors. Early contact preserves options that late contact does not, and free HUD-approved housing counseling exists precisely to make that first conversation easier.

Myth: you have to be behind on payments to qualify

Programs vary by investor and loan type. Some servicers consider an imminent, documented hardship rather than requiring existing delinquency.

The belief is expensive because owners deliberately miss payments to become eligible, damaging their position for a requirement that may not apply to their loan. Ask your servicer and a counselor what your specific loan supports before you stop paying anything.

Myth: a short sale wipes out everything you owe

A short sale releases the liens so a sale can close. That is not the same as every question about the underlying debt being answered, and the answers depend on the loan, the parties, and the approval language.

California has protections in this area that are specific and that should be verified against current law with an attorney rather than assumed from an article, a forum, or an agent's summary. Read the approval letter line by line, and have counsel read it too. The junior lienholder side of this is described in the discussion of junior liens.

Myth: forgiven debt is never taxable

Tax treatment of forgiven debt turns on the character of the loan, how proceeds were used, and your own circumstances. That is a CPA question, and it should be asked before you rely on any assumption, not after a return is filed.

The belief is expensive in an obvious way, and the cost arrives long after the file has closed.

Myth: you are underwater because a website said so

Automated valuations work from public records and nearby sales. They cannot see condition, layout, or the specific character of a street, and in a city like Claremont, where housing stock varies sharply within short distances, they can be well off.

Owners regularly conclude they need a short sale and turn out to have equity, in which case an ordinary sale is available, faster, more private, and requires no one's approval. Test it properly using the discussion of when a mortgage really exceeds the home before accepting the premise.

Myth: the bank has to accept a reasonable offer

It does not. A lienholder is comparing your offer against what it expects to net through the alternative, and it is entitled to decline. Approval is a decision, not an entitlement, and the authority frequently sits with an investor or insurer behind the servicer, as set out in who approves a Claremont short sale.

Myth: you can sell to a family member and stay in the house

You cannot. Short sales require an arm's-length transaction, and a sale to a relative or to an entity connected to you is prohibited. The rules and the reasons are explained in the arm's-length rules.

This one is expensive in the most serious way, because it is fraud rather than a technicality, and it is usually proposed by someone with good intentions.

Myth: a short sale is always better than a foreclosure

It often has advantages, but it is a comparison rather than a rule, and it depends on your circumstances, your loan, and what each path produces for you. Neither should be chosen on reputation. The trade-offs are examined in the short sale versus foreclosure comparison, and both should be weighed against retention options that may still be available.

Myth: someone can guarantee approval

Nobody can. Not an agent, not a negotiator, not an attorney. Approval, timing, and the treatment of a remaining balance are decisions made by parties who make no promises in advance.

Anyone offering a guarantee is either uninformed or selling something, and that is a reliable filter.

Myth: paying someone upfront gets it done faster

It does not, and this is the myth that funds an entire predatory industry. HOUSING COUNSELING IS FREE. Licensed real estate representation is paid at closing, out of the transaction, and in a short sale that compensation requires lienholder approval anyway.

An advance-fee demand is the single most reliable indicator that you are talking to the wrong person, and homeowners in default are targeted for it specifically. Report any such approach to your counselor.

Myth: it is too late to do anything

Often it is not. Options narrow as a file advances, but they rarely disappear all at once, and owners who assume the worst frequently discover on a first counseling call that something is still available.

The one thing that is genuinely irreversible is time spent avoiding it. Open the mail, make the free call, and get the numbers on a page.

For the full picture and the options that may still apply, start at the Claremont short sales guide.

Anthony Grynchal has been licensed in California since November 2009.