Does this describe your situation?

You have a home that is worth substantially less that you owe the bank.  Every month you struggle to make the payments or perhaps have quit making the payments.  You fear that the house will force you into filing a bankruptcy in Knoxville.  You’ve heard about Chapter 7 and Chapter 13 bankruptcy but are not sure you are ready.

You’ve heard about a “short sale” but don’t know if a short sale will save you from filing bankruptcy.

Many folks are finding that the value of their home, or even a vacation home or rental has plummeted due to the current recession.  If you are experiencing other financial stresses and need to unload the house a short sale might possibly hold the answer.

First, what is a “short sale?”  This is a sale where the purchase price being paid is not enough to pay the mortgage in full.  It’s called a short sale because you’ll be short a little money at the closing table.  Until about 3 years ago there were very few short sales accomplished in Tennessee.  The idea became popularized because of the huge drop off in prices in homes in Florida.

Tennessee was about 2 years behind Florida in experiencing the drastic devaluation of real estate.  Now that has been coupled with significant declines in industry, jobs and spending.

A short sale can only occur with the consent of the lender that holds the mortgage.  If there are two mortgages, usually it is the second mortgage that is asked to take less than 100%.  You simply have to ask the mortgage lender if it will consent to a short sale.  Some realtors are very experienced in this area.

Usually, the lender consents to the “idea” of a short sale, but retains the right to accept or reject a specific offer.  This means that you first have to agree with a buyer on a sales price.  Then you or your realtor will take the deal to the mortgage lender.

In order to save you from bankruptcy, you will want to ask for a “no deficiency” short sale.  This means that the bank will take whether they accept on a short sale and not pursue you for the balance.  In Tennessee, a lender is entitled to collect any balance owed on a loan after a foreclosure of its mortgage.  A short sale will be treated in the same way.

If you’ve go other significant financial problems a short sale may not keep you from filing a bankruptcy case.  The way to evaluate this is just look at what you are making and spending each month.  Consider the spending amounts if you weren’t paying the mortgage lender. Are you still in the hole every month?  For many of the folks I meet with to talk about filing a bankruptcy case even without payment of the mortgage, they are still way under water because of credit card payments or medical bills being paid monthly.

A Chapter 7 bankruptcy or a Chapter 13 bankruptcy could be the solution.  The only way to really know is to meet with an experienced bankruptcy attorney.