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Attorney Negotiated Short Sales are Still Just Short Sales

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What does it take to negotiate a short sale?  That’s easy.  It takes a home owner who wants to sell their home.  It does not require a lawyer, a REALTOR, or any other special entity.  There is no requirement for certification, licensing, or any special degrees that are required to talk your lender into accepting a payment for less than you owe.

The Path of Least Resistance

Attorneys don’t have any more power to negotiate your short sale than you do.  What they do have the power to do is charge you a retainer up front to do exactly the same thing that you can do.  Now, as a short sale expert, I can tell you that you do not want to be the one handling the negotiations.  It is time consuming.  You’ll be on the phone constantly with your lender hounding them for information.  You’ll be taken away from your work, your family, and your peace of mind.  You’ll make roughly 60-90 phone calls and will be bullied by them.  Regardless of the fact that you could do this yourself, you would be crazy not to hire someone else to do it for you.

So Who Do You Hire?

Well, that’s completely up to you.  But hiring an experienced Realtor is your best and least expensive avenue.  Through the process you are going to have questions that need to be answered.  You’ll have questions that involve deficiency judgments.  That’s when the bank holds you responsible for the difference between what you owe, and what the home sells for.  Those questions are answered by an attorney.  You’ll have questions about your tax liabilities.  That’s what your CPA is for.  Then you’ll have questions about selling your home and negotiating with the lender.  That’s what we’re here for.

So Who Negotiates With the Lender?

The Realtor handles this for you.  Why?  Because he or she is paid at close of escrow and does not charge you up front.  If you hire an attorney to negotiate your short sale, you will pay a retainer before anything comes of it.  If the lender doesn’t agree to the sale, you cannot recover that money.  CPA’s just don’t do this type of work, so you wouldn’t ever hire them for anything other than tax advice.

Why are Attorney’s Selling Negotiation?

Because there’s a market for it.  But you still need a Realtor to list your property and negotiate a contract price on your behalf.  Also, because the attorney gets money up front.  They also give you no guarantee that they will succeed.  Just because they’re an attorney does not give them any more ability to negotiate with your lender than anyone else.  They aren’t “forcing” the banks legally to accept less than you owe, but because they’re “attorneys” there’s some sort of mystical magical power that people think they have as opposed to a Realtor.  They’re just doing what your Realtor has been thoroughly trained and is well-qualified to do for you.

Note:  It is absolutely critical that your Realtor know how to manage a short sale.

If you’re going to sell short, don’t you want someone who has your best interest in mind?  I don’t charge an up front fee to do the same job better than they can.  Take the path of least resistance, and least financial risk.  Leave the legal issues up to the attorneys.  Leave the sale negotiation up to us.

For more info please visit harcourtlegal.com.

Realtor Questions: What To Do When the 2nd Requires a Personal Note

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Today I was asked a question by an agent who represented a buyer on a short sale listing that I negotiated recently. She is currently representing the seller, and was curious to know how to handle the following scenario.

The 1st has approved the sale of her client’s home short of what is owed, and the 2nd has also given the go-ahead under the condition that the owner pay the balance to the 2nd.  Here’s the question:

Q: I have a question that has just arisen with my current short sale. The 2nd guarantor loans lien-holder has approved the short sale; however, my client just got notified that she’ll still have to pay back the full balance. Is there any recourse or because it’s an “unsecured” debt, they have the right to request that. Please advise, thank you soo much.

Here’s my answer, and remember that I am not a CPA, nor am I a Tax Advisor, nor an Attorney:

The following objective information is based on my observations in the marketplace and cannot be considered tax or legal advice. Please consult an attorney or tax advisor if you are concerned about these very real details.

The second lien holder has a right to request whatever they want, however, since the property is headed towards foreclosure, and I assume that this is the case, the 2nd knows that they will get nothing out of the deal.

There are many variables that contribute to the expected requests of the 2nd. For instance, was the 2nd part of the original purchase on an 80/10/10 or other “creative” product? In other words, was it purchase money, or was the 2nd taken out later as a HELOC. In the case of a HELOC, it’s more likely that the 2nd will require the owner to sign a note for the balance of the loan in order to remove the lien.  A HELOC is not only tied to the property, but to the person, so it much more closely resembles an unsecured debt, because the money that can be drawn from that line of credit can be done so in the form of cash to be used on anything you choose.

Since the HELOC is tied to the person, even in the case of a foreclosure, there is a high likelihood that the lender will have legal recourse and will probably pursue you in the future for the balance.  In the case of unsecured credit extended to an individual such as a credit card, personal loan, or HELOC, it’s commonplace for lenders to settle for less than the balance, but only after exhausting all in-house and 3rd party efforts to collect on past due balances.  This is the key in settling for less than you owe.  The balance must be past due enough that the lender sees there’s no other option but to accept a fair settlement.

They’re basically saying, “hey, we will allow you to sell the house, we’ll release the lien, but you still owe us the money, so in order for us to release the lien, you need to sign a personal guarantee that you’ll repay the loan.”

There is a moral issue in this scenario.  If the money that is owed on the 2nd was not purchase money, and it was cash out of the house used to finance other purchases, other real estate, cars, boats, toys, gambling, food, or whatever, then the borrower has a moral obligation to repay these debts in a reasonable time frame, if not on the pre-determined schedule presented by the lender.  If the borrower refuses to pay, they are opening themselves up to legal problems, and will have an 800 pound gorilla in their financial future until it’s cleared up.

If the 2nd was purchase money, then you’ve reached a point where you need to continue to negotiate with the lender, because current tax laws may protect the buyer from a deficiency judgment, and debt forgiveness may actually become a reality on that loan.  Many times, in fact in most cases, the approval process is drawn out until the final hours prior to trustee sale.  The thought process behind this is for the 2nd to wait as long as they can before letting the debt go for pennies on the dollar.  In that time period, some home owners’ situations improve and they are able to get back on track.

In every case that I have dealt with, the 2nd, in a purchase money mortgage, gives in, because they won’t get anything if they play “spiteful lender.”

Have a question for me?  Ask!  I love helping you understand the process, because it helps the entire industry to be educated about how Short Sales work.