I could swear I wrote this story once before, but I went through my blog and couldn't find it there.

I recently went back to work as a mortgage banker and, from that perspective, I can tell you we are far from the end of this economic downturn....but that's not what this column is about.

I came home early today to wait for the repairman - the "insinkerator"  in the kitchen sink stopped working and one thing I can't stand is a kitchen without a working disposal - and, from habit, turned on the television, which is always tuned to CNN because that's what I watch before I leave for work in the morning. 

And, once again, I heard the same tired old advice being given out to viewers who ask questions about what to do with their underwater house.

The answer is always the same:  short sale.

 The rationale given for the short sale hovers somewhere between moral responsibility and the negligible  impact on your credit scores.

There's no moral responsibility contingent upon us to help mega-billion dollar corporations to continue raping the average citizen.  The reason the house is underwater is that the banks undermined property values INTENTIONALLY, with malice of forethought.  ( And before you ask, Yes, I can prove it...but that's not what this column is about.)

I have heard this advice about short sales over and over again, given with the rationale that a short sale doesn't hurt your credit as much as a foreclosure does....and that's just not true.

It is true that a short sale won't affect your credit scores per se....because you aren't missing a payment on a debt, which is what affects credit scores....but foreclosures don't change your credit scores either.

This is because, by the time you go into a short sale or a foreclosure, you have already accumulated numerous late payments on your credit report, because that's why you are going into the short sale or foreclosure - you can't afford to meet your financial obligations.

In other words, the damage has already been done to your credit.  

 What isn't true is that short sales don't affect your ability to get credit because short sales affect your ability to get a mortgage in exactly the same way as foreclosures and bankruptcies do. 

If you read the guidelines from any major bank, as I do on a regular basis,  you will find that, without financial mismanagement, borrowers who have short sales on their record will not be able to get a new mortgage for two to four years after the short sale, depending on the circumstances. 

That's exactly the same length of time you will be unable to get a new mortgage with a foreclosure on your record....or, for that matter, a bankruptcy...without financial mismanagement.

With financial mismanagement, the waiting period is seven years for short sales, foreclosures and bankruptcies.

With one important exception, underwriters generally consider all of these adverse circumstances to be results of financial mismanagement.

 The exception is cases involving large medical expenses from catastrophic illnesses, which are usually considered an extenuating circumstance. 

Note that your waiting period before getting a new mortgage is exactly the same for short sales and foreclosures.

So, why do real estate agents, lawyers, accountants, banks and financial pundits continue to advocate short sales?

Real estate agents make commissions of short sales.  Lawyers earn fees off short sales.  Banks get non-performing mortgages off the books much more quickly and much more cheaply through short sales than they do through foreclosures.   Accountants are unable to give clients advice that violates the law.  Walking away from debts is technically a crime.

The financial pundits say what they are told today.  Banks are very important advertisers.

Until recently, when borrowers liquidated homes through short sales or foreclosures, were liable for the taxes on the amount of the debt that was forgiven by the lender, which is the difference between the outstanding balance on the loan and the amount the lender receives from the sale of the property.

In 2007, reacting to the housing crisis, the  Bush administration passed a law that exempted borrowers from having to pay taxes on the amount of the debt that was forgiven in both short sales and foreclosures.  This exemption expires at the end of 2012.

The obvious intent behind this legislation was to push home owners into short sales before the deadline is reached, and accelerate the process through which these underwater homes returned to the market.

There is a critical difference between short sales and foreclosures.  You can't force the bank to foreclose on you.  You have to wait until they are good and ready to foreclose.

With a short sales, you can extricate yourself from the underwater house and from the mortgage that binds you to the house....and that's sometime necessary so that people can get on with their lives.  That accelerates the process of getting your credit-ability back on track.

Or, you can simply give the house back to the bank...a process call "deed in lieu of foreclosure," but you can't do that until the bank has instituted foreclosure proceedings.  (See Comments below:  Deeds in lieu of foreclosure are NOT covered by the  Mortgage Debt Relief Act of 2007 and therefore, the foregiven debt IS TAXABLE, whereas it is NOT taxable with short sales or foreclosures.  Thanks, AlsoKnownAs for that feedback.) 

If, however, you don't have move....don't. 

You bought the house.  You put down good cash money.  Through circumstances beyond your control, the house you own is worth less than you owe on it.

Stay as long as you can....even up the score.

The bank will try to get you to agree to surrender the house.  This is the deed in lieu of foreclosure.

Don't do it.  It saves the bank thousands of dollars, and forces you to move.

Stay as long as you can.  Keep up the property as well as you can. 

There are very few ways we can fight back against this broken system. Refusing to leave your home and forcing the bank to go through the whole foreclosure process is one of those few ways.

If everyone did this....if everyone had done this from day one, simply refusing to leave the property....we wouldn't be in this mess because nothing encourages capitalists to come up with more creative solutions than large financial losses.

It was through the acquiescence of the foreclosed upon that we allowed this tsunami to overtake us....because there was no one out there organizing concerted resistance to the foreclosure mania that took hold of the nation in 2008.

I know people who were able to stay in their homes for four years after the foreclosure was first file.  The average length of stay is currently  more than two years, but that number is starting to shrink.

There are people who will argue the morality of this advice.

Fuck them.

We are already at war with the oligarchy....we just haven't fully realized it yet.

But whatever you do, don't let anyone talk you into a short sale. 

If you want to stay in your home for one reason or another, by all means, move....but don't get involved in the machinations that go on - sometimes for months - around short sales. 

Let the bank foreclose in its own sweet time. 

Don't just sit there and take it.  Fight back.

The repair man came and went in less than a minute.  He showed me how to free up the insinkerater with a heavy screwdriver.  Useful information to have.

(Note:  I have seen a number of cases where borrowers who have reached the end of the foreclosure process have forestalled foreclosure by opting into the short sale process at the last minute.  So, if you are on the very of a final foreclosure order, by all means, investigate the short sale option....but only after you have exhausted the foreclosure process.)