The simple answer is that a short sale costs nothing.  Most residential real estate attorneys do not charge a consultation fee. I do not charge a consultation fee!  For legal fees I rely on the bank to absorb my fees in the short sale payoff to the bank.  

That said, the more complicated answer regarding the costs of a short sale is that the cost of the legal fees and all other fees related to the sale (Realtor Fees, outstanding utilities, etc) are all added to the deficiency. The deficiency is the difference between the total amount that the lender(s) is owed and the amount that they receive through the short payoff.  If the lender is taking less money in order that a Realtor or attorney fee may be paid, then the deficiency will increase by the cost of these services. So, the important question is:  What will happen with the deficiency after the sale?

There are several possibilities as to what will happen with a short sale deficiency:

1. The lender may reserve their right to pursue the deficiency.

2. The lender may demand that a portion of the deficiency is paid in cash or through a personal note.

3. The lender may forgive the entire deficiency and settle the account as paid.

The final cost to continue is the tax consequence of a Short Sale. The Federal tax may not be an issue, depending upon whether or not the mortgage was a purchase money mortgage used to purchase a primary residence.  However, the State tax must be paid.  There is no automatic State exemption in Massachusetts.  this is why I always recommend that a short seller consult with an accountant before committing to a short sale!

We are pleased to provide an example of a Federal Government Home Affordable Foreclosure Alternatives (HAFA) short sale program Initial Approval that was generated through bank of America's REDC division. (REDC is a division of Bank of America that deals with these types of short sales.  There are other divisions that also provide this service.)

Below is a brief timeline of our experience with this phase of the HAFA short sale initial approval:

2/16/11 - Met with client to review short sale options and best option appears to be cooperative short sale with HAFA as the largest payout to Seller $3,000.

2/17/11 - A new file was opened and authorization  sent to Bank of America to begin approval process.

3/2/11 - BOA responds with "Packet sent to Seller who will receive the information within 5-10 days".

3/11/11 - Documents have been compiled and are submitted to Bank of America/REDC on behalf of the Seller. 

3/25/11 - List Price is established on-line.  Agreement will be drawn up by Bank of America and sent to seller.

3/29/11 - Short Sale Agreement is received and must be approved by the seller.

The basic approval is as follows:

 • The process begins by establishing a list price.  Once the list price has been set, the property must be actively marketed for 120 days.

• When an offer is received, a Request to Approve a Short Sale (RASS) form must be submitted.  A signed purchase offer and proof of funds must be submitted with the RASS form.

• All outstanding liens must be paid or released prior to closing. The HAFA program allows up to $6,000 total of all subordinate loans to be deducted from the gross sale proceeds to pay subordinate lien holders. 

• After closing, up to $3,000 can be made available to the seller to offset some moving expenses. 

It took six weeks to get the property on the market, but with an initial an initial approval we have a sure starting price; higher likelihood of success and the greatest benefit to the Seller i.e. $3,000 cash and no deficiency!

Disclaimer In accordance with rules established by the Supreme Judicial Court of Massachusetts, this web site / blog/ newsletter /email must be labeled "advertising." It is designed to provide general information for clients, prospective clients and friends of the firm and should not be construed as legal advice, or legal opinion on any specific facts or circumstances. This web site / blog is designed for general information only. The information presented at this site / blog should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

I know that it sounds strange, but with short sales I think it is a good idea that we start the process as a team before you commit to taking a short sale listing.  A few years ago I was working on a short sale and during the inspection negotiations we discovered that the Seller had actually already lost the home to foreclosure six months prior to the date of our contract.  The listing agent was understandably upset.  She had been showing a house that her Sellers had not owned for six months! What I am getting at is that there is some review and planning that I can do to increase our chances of success before you take the listing and before you have sold the property:

• Preliminary title search to see if a short sale is possible
• Review of the title issues to see if we need to alter the marketing strategy- Ex. If there is a small credit card lien we can negotiate a payoff that Buyer agrees to pay in conjunction with a lower sale price
• Strategy development for lender programs that require input from the lender at the time of the listing in order to avoid the lender reserving its right to pursue a deficiency
• Client preparation for both success and failure with a review of the credit, tax implications and other options including bankruptcy  
• Protect the team (you and me) from liability while we attempt to assist distressed Sellers through an in depth free consultation

We can also speed up the process with an initial consultation.  The consultation is free and it is a good time to review the process and prepare the file with the proper documentation ahead of time. That way when the property is sold we are ready to proceed.

So, when you are thinking about taking a listing give me a quick call or shoot me an email with the property address and I will send you a quick title update

Disclaimer In accordance with rules established by the Supreme Judicial Court of Massachusetts, this web site / blog/ newsletter /email must be labeled "advertising." It is designed to provide general information for clients, prospective clients and friends of the firm and should not be construed as legal advice, or legal opinion on any specific facts or circumstances. This web site / blog is designed for general information only. The information presented at this site / blog should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

Did you know that there are four ways (and counting) to start a short sale with Bank of America?

1. HAFA - Bank of America is a participant in the HAFA program wherein a qualifying short seller may receive $3000 in sale proceeds and avoid any deficiency judgment. This program requires qualification of the seller before or while the property is listed. This program is offered through the on-line equator system.
2. Co-op - Bank of America has a cooperative program wherein a qualifying short seller mat receive up to $2500 in sale proceeds and will most likely avoid any deficiency judgment. This program requires qualification of the seller before or while the property is listed. Essentially Bank of America begins the evaluation of the borrower/seller and value of the property before you have a buyer. Bank of America claims that after an acceptable sales price is set, short sale approval takes just 10 days! This program is offered through the on-line equator system.
3. FHA / VA - If the loan that is being serviced by Bank of America is an FHA loan or VA loan there is a completely different system that is used ***DO NOT USE EQUATOR***  Successful short sale approvals also include cash back, $1,000 or $750 depending on how fast the sale occurs, and no deficiency judgment.
4. Brute Force (just kidding) The "traditional method" of presenting a contract and short sale package without the use of these other programs will always conclude if successful with an approval letter wherein Bank of America and / or the actual investors and mortgage insurance company reserves the right to pursue a deficiency.

Start with the right process and you will have a happy client at the time of the sale.  Start with my office and we will help you get there! 

All the best - Nyles 

Disclaimer In accordance with rules established by the Supreme Judicial Court of Massachusetts, this web site / blog must be labeled "advertising." It is designed to provide general information for clients, prospective clients and friends of the firm and should not be construed as legal advice, or legal opinion on any specific facts or circumstances. This web site / blog is designed for general information only. The information presented at this site / blog should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

Greatest referral I have received to date is for a program called Wix.  It is an on-line web site builder and it is absolutely great.  I cannot tell you how wonderful it is to use a web site builder that is 100% intuitive.  It is fun to use and immediately gratifying.  i just used it to create a fan page for my business.  There are many templates to choose from at no cost. 

I was holding off and then I saw something that opened my eyes to facebook.  Fora long time i have been debating putting a page together for my law firm, but it seemed like I would be just another annoying fan page that people would ignore.  Then I took a look at the number of real estate professionals who have become my friends on facebook.  It occurred to me that many of them may not realize that I have truly developed a great short sale practice with a dedicated short sale processor. 

So, if you are wondering what I am working on this week, no need to check my facebook profile. . . You just might be getting asked to like my short sale fan page. . .

Just think of the possibilities. . . maybe not just a fan page of everything you do - just a fan page about one niche thing that people may be looking for!

As a MA Short Sale Lawyer, I have seen many short sales fail for a variety of reasons.  In Western Massachusetts, one of our impediments is our strict use of the standard Realtor Contract and our local closing customs. Following is a list of suggestions and some reasoning behind each provided in the hopes that these ideas may catch on in MA (and elsewhere as they may be applicable outside of MA) and lead to more Short Sale success stories:

Problem 1: Inspections after contracts are signed/and /or after short sale approval

It is customary in much of Western Massachusetts to make an offer and sign contracts that provide for a ten day inspection period.  In short sale transactions in Western Massachusetts, this ten day inspection period is often delayed until the Seller has obtained "Short Sale Approval".  This frugal custom can be disastrous to Short Sellers and the professionals working for them!  In Short Sale transactions, the inspections should be completed prior to finalizing the sale price on the purchase and sale agreement for a number of reasons:

1. If there are repair issues and the contracts are already signed and submitted to Seller's Lender for approval; Seller's Lender may not change the price.  If these inspections do not take place until after the Short sale is approved, the Seller's Lender will absolutely not change the price and the deal is as good as dead.  By completing inspections prior to finalizing the contracts, the Buyer has an opportunity to lower the price in accordance with the repair issues.  Also as a plus, the Seller can use the inspection report to further justify the sale price.

2. Buyer's delayed inspections may cost the Buyer opportunities in the event that they do not proceed with the short sale due to an inspection issue. Consider that in an ideal world a short sale approval can take 60 days and countless hours of processing to obtain. If a Short sale is obtained on day 60 of the contract and the Buyer performs an inspection on day 70 only to back out of the deal due to X and Seller has no funds to fix X, Buyer has wasted an entire season of house hunting.  Not to mention the possibility of losing the opportunity to take advantage of the current low interest rates and the opportunity to purchase many other homes that came and went on the market. . .  

3. Buyer's delayed inspections and ultimate withdrawal over an inspection issue may have just cost your Seller the opportunity to sell their home short.  Let's face it, the collections machine never sleeps.  In most instances we only have so much time to sell a property short  before the bank forecloses.  We cannot take this unnecessary chance that our deal may blow up over an issue that can be addressed on the front end of the transaction.  If the parties cannot agree, the seller must move on to a more reasonable flexible Buyer. . . 

Problem 2: Automatic Seller Pays Provisions

The standard contracts and addenda in Western Massachusetts require that the Seller automatically pay for certain items that can come up in the sale of residential real estate.  These items include the following: Termite issues (Seller is on the hook for the 1st $1,000 in termite treatment or repair), title V (septic) issues (Seller is on the hook for the $300 to $500 test and up to $10,000 in septic system repairs) and title issues (Seller is on the hook for the 1st $2,000 in title issues). The Sellers that I am dealing with often do not have the funds to pay for any of these issues.  

The answer under these "Short Sale" circumstances is that the Buyer needs to pay for all inspections at their own risk and adjust their sale price accordingly.  There simply is no money in these transactions for these Seller pay provisions.

Problem 3: Customary Charges that the Banks won't Pay for

Although I have often said that when it comes to negotiating in real estate transactions, it doesn't cost anything to ask, when it comes to Short Sales, I feel that I keep submitting all of the costs and fees that I would normally expect the Seller to pay for in a real estate transaction and the Banks just keep saying NO! These fees include the final utilities for the Seller and certain closing costs that a Seller is typically charged. as the Seller's attorney I have on many occasions "eaten" some of these fees myself, just to get the deal done. Sometimes the feast of such fees and costs is so great that the Realtors slash their commissions to help make it happen.

Unfortunately due to the frequency that Banks are cutting the Realtors commission to 5% and cutting the attorney fees as well, the practice of absorbing these fees just isn't working and can lead to disaster at the time of closing. There are a few different categories of these fees and an ideal way that we can agree to handle each one:

1. Adjustment Issues: Sometimes the bank won't pay the final water bill.  Sometimes the bank won't pay more than X in taxes; sometimes the bank won't pay the final electric or other municipal service fee, trash, sewer, etc. . . I am sick of paying these fees out of my fee!  Let's go back to the beginning of these transactions and look at where we are with these charges on day one, take our best guess as to what they will be in 60 days and deduct that amount from the negotiated price. We could simply change the rules with regard to adjustments and state that "Buyer agrees to be responsible for up to $1,000 or $2,000 in adjustments or other Seller costs at time of closing." Then just reduce the sale price by that much. . .  

2. Along the same lines, there are some settlement charges that a Seller usually pays in Western Massachusetts, but the same principles would apply elsewhere: For example, in Massachusetts the Seller must pay for their overnight fees for payoffs, discharge recording fees and discharge tracking fees. For 2 mortgages this would be approximately $340; and the banks are not paying these fees.  Let's place a provision in the contract that says the Buyer will pay those fees and move on. . . again, I don't want to pay these fees and neither do the Realtors.  We can however, contract for the Buyer to pay these fees. . . 

3. A pet peeve of one of the Realtors that I work with is that in  short sale listings he gets stuck paying fees related to fulfilling the "smoke detector certificate" requirement  in Massachusetts. Because our Short Sellers have no money, the Realtors often pay the bill for the smoke detector inspection ($50 +/-) and often the costs of batteries and several replacement smoke, carbon monoxide and/or fancy photo-electric smoke detectors. This can be  a few hundred dollars in expenses and it is just not fair for the Realtor to have to pay.  In the contract addendum we use, it states that if the Seller's Lender will not pay for these smoke certificate items, the Buyer must pay. . . problem solved.

The key to the vast majority of all of these issues is that we have to treat short sales like the banks treat their bank owned properties.  Because they are a bargain, the contracts for bank owned properties place more of the requirements and costs to the advantage of the seller. They have their own over-riding Bank addendum that knocks your standard contract ands local customs on their ear.  We need to do the same thing with these short sales. We need our contracts to require that the Buyers inspect the property now; set the price for an "as is" sale; and in that price subtract another $1,000 to $2,000 cushion as needed to pay for any municipal utility costs, unpaid taxes, Seller closing costs, title v inspections and smoke detector certificates and supplies so that when we get the approval and the bank refuses to pay for any of these things, we may still succeed with our sale!

As a real estate attorney with a growing short sale practice I have begun to identify patterns that lead to short sale success and failure. Generally speaking a short sale's success or failure can be determined with a review of the current title.   

THE ABSOLUTE IMPORTANCE OF CHECKING THE TITLE

Short sales as we all know are long term professional commitments that can take months to come to fruition. In one short sale transaction wherein I represented a Buyer, the Seller's attorney had not checked the title prior to accepting the short sale client.  We got into heavy contract negotiations over some repair issues.  The Seller would not back down, insisting that they would bring no funds to closing to pay for the repair issues.  At that point I was curious to know if there would be any other issues over adjustments, etc and I found that the taxes were not in the Sellers' names. In fact upon further review, I determined that the Sellers had lost their home to foreclosure six months prior. THEY DID NOT OWN THE HOME THAT THEY WERE TRYING TO SELL! That was the end of that deal.  How do you think the Realtor felt after marketing that property for 3 months, negotiating contracts, etc. . . 

PEOPLE DO NOT KNOW WHAT THEY OWE

Out of this experience and other experiences from my office (we also do collections work!) we have learned that when people get into debt, they stop opening their mail. Your sellers may not know what they owe to whom or where they are in the collections process. There could be multiple tax, credit and mortgage liens. The more liens, the more improbable your short sale success.  If there are several lines on a property you should walk away and work on something that will lead to a commission!. . .

THE FORECLOSURE IS SCHEDULED FOR TOMORROW

Another terrible thing to have happen is to take a listing only to have the bank foreclose the next day.  Again, in most jurisdictions there will be some indication of foreclosure activity in the title. (For example in Massachusetts you will find an "Order of Notice" Recorded a couple of months prior to a foreclosure.)  

As a service to all of the Realtors that I do business with, I run the title before they take the listing.  If your attorney source is not doing this for you, it is important that as a Realtor you learn to do it yourself so that you do not waste any of your valuable time on a Short Sale that will never make it off the ground. 

So many short sales end in disaster even when all of the parties have the best intentions and under the best circumstances. A common issue that I have come across is that the bank will often refuse to pay the back taxes or utilities for the property. Another problem with vacant properties is that the Seller after leaving the property refuses to pay for utilities and they are shut off by the providers. . . .  Sometimes these issues can be a compete deal breakers.  Often times we are just a few thousand dollars short from making such short sales work. . .  

Recently I happened upon an unusual set of circumstances that is working so well, I am contemplating that we (Realtors I work with and myself) put this one in the "playbook".  In this scenario the Sellers had actually relocated to an apartment. We found a buyer, however, the short sale approval process was heading past the 90 day mark and the Buyer was getting anxious.  The Seller was also at the point where they did not want to pay for the utilities any longer (heating season is here!). So, the Buyer indicated that he wanted to rent the property.  The way we set the rent up was that the rent would be payable to my office and the Seller agreed that the rent could be used for utilities and to cure any deficiency over the taxes at the time of closing. 

This has worked out perfrectly.  The rental agreement requires that the tenant pay the utilities.  We have used the rental income to bring the utilities current an after an addition al sixty days, we now have an approval.  With a few month srent, we also have the money to pay the taxes. . .

Under the right circumstances, rent to short sale can work!

One sure way to catch more real estate closings is to cast a wider net.  Over this summer I decided to spread my marketing efforts over several offices and enlarge the geographic area that I am covering.  It may seem like a simple idea, but it is something that I rarely take the time to do.  This concept relates to Realtors and Lenders as well as Real Estate Attorneys.

Another idea that I have been trying to run with (if I may extend this fishing analogy) is to be flexible and use different bait.  Today refinances are hot, so I am running a refinance special.  For the last couple of years and years to come, short sales will be hot, so I am promoting my short sale services.

Lastly, I fish more often!  Taking potential business sources to lunch and maintaining existing relationships at least once a week is a healthy way to keep in touch with current sources and to gain new ones.  You can't skimp on the advertising budget - if you are not casting out, you are not going to catch anything! 

So, if you are a customer of mine and I haven't called you in a month , drop me a line and we can catch up on all the hot spots in the real estate waters. . . !