Short Sale and Short Pay Off Short Sale When our firm was established almost a decade ago, the real estate bubble was just beginning to pop. Practically all the real estate transactions we handled were short sales. We primarily represented clients in hardship who wanted out of a bad investment or purchased their home at the top of the market. While the market has recovered, homeowners still suffer hardship of all kinds including loss of job, death in the family or divorce. If loan amounts exceed the market value of the property, the homeowner may need to proceed with a short sale. Short Pay Off A short pay off is a lender approved, reduced pay off amount where the seller has the option to received funds from a sale of the property or from paying off the loan him or herself. Most of the information below applies to the short pay off process including document submission and asset protection. However, the great benefit of a short pay off is that a seller can take away cash from a sale where a traditional short sale prohibits any funds flowing to the seller. Or, in the alternative, the seller may pay off the loan at the reduced amount if he or she can raise the funds. Why Hire a Lawyer to Negotiate a Short Sale or Short Pay off? We are Licensed to Practice Law – While we work side by side with realtors on short sale transactions, realtors are not licensed to practice law or give legal advice. Even if your realtor is competent to negotiate on your behalf, it may be unlicensed practice of law for your realtor to work out short sale terms with your lender. In addition, other legal issues may arise in a short sale such as tax liability, foreclosure litigation and bankruptcy issues. You will likely need assistance to make important decision associated with these legal issues. And, last, lenders have lawyers on staff to represent their best interests, so should you. Release of Personal Liability – Although your lender may approve the short sale and accept less than the full balance due as payment, the lender may or may not release you personally from the balance remaining. This is commonly called deficiency debt. After the short sale, the lender may proceed against the seller for the collection of debt. It is essential that the deficiency debt is addressed in the short sale approval. If there is no language, then there is no guaranty one way or another if the lender will not collect. Typically, we would not recommend a seller to proceed with short sale if all debt is not resolved in the transaction. Asset Protection – During the process of short sale, you will be providing your income and expenses, tax returns and bank statements. Lenders may also look at your credit report and request written explanations of income and expenses. Banks scrutinize these financial documents to determine if the seller has legitimate hardship. Since the lender is taking a loss, you can count on the lender looking at every detail. Our office will review all the financial documents in advance of submission to anticipate the lender’s concerns and issues. In most cases, we can point out the specific items that may result in a seller cash contribution or promissory note at closing. In other words, a seller could be required to bring in money to close, i.e., liquidating a stock account or tapping a retirement funds. To the extent ethically possible, we will work with you to protect your assets through the short sale process. File Transparency – We provide sellers detailed weekly updates and make ourselves available to respond to client questions. We contact the negotiator assigned to the short sale on a weekly basis. When the lender is dragging its feet or when other delays arise, we proactively get the transaction on an expeditious track. There will not be a period in which you are not clear as to the stage of your short sale or when a final lender response may be available. Peace of Mind – Once the transaction has closed, most sellers would like to put the ordeal behind them. A lawyer can offer a seller this assurance, unlike any other person.
