Legal Question in Real Estate Law in Florida

Here in Florida a man I know told me he had a short sale on his home and, using an attorney, basically bought it back himself at the lower price using a different bank for the loan. He said his house payment dropped down from $2400/month to $1000/month, and that the most expensive part of the whole deal was the attorney's fees which were around $5000. Minimal closing costs since he was the buyer and the seller. I'm wondering how he found another bank willing to give him a mortgage since he was basically defaulting on the first one. Have you ever heard of anyone doing this?

Asked on 10/07/10, 8:17 pm

2 Answers from Attorneys

Shelly Schellenberg MI & FL private practice

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No, in fact the first lender likely had a clause in the short sale agreement that the defaulting owner (or relatives) could not profit from the short sale, and could not walk away with cash in hand. The only way this sort of deal could work is if the property was listed on the open market for an extended period of time, and there were no other buyers for the property, due to bad location or poor condition. In that case, the first lender may have been happy to get what it could out of the deal, and the second lender may not have known how bad the property was, or made the loan for a much longer time period. The other possibility is that the man has "embroidered" his story to make it more interesting. When it sounds too good to be true.. it probably is.

The amazing thing about this story that is true, is that some banks will give loans to people who are defaulting on other loans, providing that the defaulted bank has not reported the default on their credit report. Many lenders agree to withold reporting, apparently hoping that the borrower will come up with other funds, and leave someone else holding the bag. This is one of the many reasons that our country is in now the financial mess that will take generations to clean up.

Answered on 10/13/10, 6:28 am

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