“Penny wise and pound foolish.”
Maybe it’s an old saying. But there can be truth in it.
I constantly see the practical application of this saying in the real estate foreclosure market.
In California, some loans are “non-recourse.” With “non-recourse” loans, the borrower generally won’t have personal liability after a foreclosure for any shortfall or deficiency in the foreclosure sale price. In other words, if the property is worth less than the loan, the borrower won’t have to make up the difference if the property is sold in foreclosure.
Most borrowers don’t know the law with respect to foreclosure. Foreclosure can seem mysterious, and somewhat foreboding. The phrase “Short sale” sounds so much less foreboding than the word “Foreclosure.”
But many homeowners who can’t meet their payments have a choice between foreclosure or a short sale. There are often tens of thousands, or sometimes hundreds of thousands, of dollars at stake in such a decision. The net economic difference to a homeowner between selling their home in a short sale as compared to losing their home through foreclosure can be very significant. Sometimes a short sale yields a better result. Sometimes foreclosure is better. But it’s difficult when I hear that homeowners facing such decisions are unwilling to spend a few hundred dollars to get some professional advice on which course of action makes the most sense for them and which one is likely to yield the better result.
It’s tough. Homeowners facing a short sale or foreclosure are already losing their entire down payment. And they are also often losing all of the work, money, and improvements they’ve put into their property. The thought of spending additional money on attorneys fees only to lose more money can seem like throwing good money after bad.
What these homeowners often don’t realize is that the money they spend for professional help is being spent in the nature of “damage control.” Homeowners who choose a foreclosure or short sale can end up being surprised at the end of the day when they think that the short sale or foreclosure is the end of the process, only to learn too late that the lender has preserved a claim against them following foreclosure and intends to pursue it. This can often happen in situations where there are two loans against a property, but it can happen in other situations as well. A short sale or foreclosure can both be thought of as a transaction, though such transactions may be made under pressure. Even though a homeowner will most likely lose money in such a transaction, there can sometimes be an opportunity to lose even more. Competent, qualified, professional advice can sometimes make a big difference on helping homeowners minimize their losses and can help them avoid losing even more.