Short Sale Retirement Accounts

My friend and fellow realtor in Jacksonville, FL Carmen emailed me the following question this morning:

short sale seller disclosed that they have stocks as the lender requested the financial statement recently it is on their taxes but the lender also wants the expense and asset worksheet the house s 44,900 and they owe somewhere in the seventies  – seller thinks they can now switch gears and not short sale and just pay the difference not thinking there will be taxes and interest for the time it went unpaid—what do you think? Question: if the stocks are worth well over $100K what’s the likelihood of the lender allowing the short sale? and can’t lender include back fees and interest? The lender ordered an appraisal yesterday

My response:

Hi Carmen. My sister is up early again I see. May your light shine before men that they should see your good works and glorify your Father which is in heaven.

My response to your email is that it depends. If the funds are in a retirement account 401k or IRA then you can just have them sign a letter that they were told that the retirement accounts survive bankruptcy. This means they are shielded from creditors, so even if the foreclosure completes and the shorting lender gets a deficiency judgment then they can not attach it to their retirement accounts. The disbursements would have shown on their taxes if they withdrew money from their own retirement account in which case they have to pay the IRS penalty for that. More than likely though, these are not in a retirement account and if that is the case then the shorting lender could pursue them and attach their judgment to the stocks; the Courts would then require that the seller/borrower complete a debtor’s exam listing all of their assets and they could bank levy the funds.

They could redeem their house of course by paying the past due amounts, interest, forced placed insurance, property tax, and attorney fees and court costs if applicable. In Florida they have an equitable right of redemption which means they can do this at any time before the auction and the lender is required to reinstate their loan.

I would never discourage them from redeeming their house if that is what they want to do. I have a rule that I can’t care about your short sale any more than you, so if their heart is not in it and they have the funds available to redeem then so be it and you will have a client when they sell down the road as an equity sale.

For the most part, we have to prove hardship in order to get the short sale approved with a deficiency waiver. There are exceptions to this depending on their loan type and if the credit score is below 620 in which case on some loans they assume hardship and do not require the account statements.