#2 – Daniel Bruckner’s point about forgiveness of debt is not quite correct. What the 2008 Act did was waive the taxes otherwise due for cancellation of indebtedness income IF (and only if) the loan passes that law’s tests. The Act did nothing about actually cancelling any debt.

Here is where I lie and what I do know. Having done short sales on a full-time basis for over 5 years, with hundreds of closings, I do see a propensity that is heavily weighted to how an offer is presented and by what is demanded by and to the lender(s) involved.

On several occasions we have received a request by the lender for a promissory note to be signed by the homeowner. Here is where some of those requests fall into murky waters. Due to a few positives that the government has recently done, one was to enact a “forgiveness of debt” on any property that was either lost through foreclosure (REO), sold as a short sale or sold on the courthouse steps to a third party buyer. The stipulations are that it be a primary residence and that it is before 2012 that this happened. Being that we are only at the end of 2009, so far, so good!

The few properties we have purchased where we had this requested demand from the lender (or its investor), we “encouraged” them to reconsider their promissory note request and through negotiating and substantiating certain facts, we were successful in getting that request removed in all cases (if memory serves me correctly, it was under 7 times that this “promissory note request”) came up. I haven’t seen a promissory note demand by a lender in all of 2009.

So, while I agree with your logic and understand why they may choose this option, I just don’t see it that often and either out of good fortune, luck or knowledge, haven’t had to worry about it either.

As a worse case scenario though, I suppose the homeowner could agree to sign the promissory note, close the short sale and move on. The promissory note is an unsecured note and based off of the homeowner’s insolvency, would be hard, to receive any payoff.

I do agree with Alexis as well that REO’s are a definite way to go. It is all about diversification. Just as in stocks, real estate should carry the same diversification rules. The more arms you have looking for the low-hanging fruit, the better the chances are that you aren’t going to have to get a ladder, climb up to the top rings and worry about a strong gust of wind coming your way.

Should short sales be frowned upon? Absolutely not.

Does it help to learn the methods of short sales so they turn from a “pain” to a “gain”? Most definitely!

Just as in REO’s and building your business, contacts and knowledge within that realm, just as great, if not greater discounts can be achieved in short sales as well.

To everyone’s success;

Daniel Bruckner