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The Truth About Short Sales and Purchase Money Loans

By
Real Estate Agent with Elizabeth Anne Weintraub, Broker DRE #00697006

sleeping with catYou know what makes me feel warm and fuzzy all over? More than a cat crawling under the bed covers at 5 AM and purring? When a prospective client calls, and I look up the loan in the tax rolls to discover this potential short sale involves a purchase money loan. Because purchase money loans in California are non-recourse. But a purchase money loan doesn't mean it's free sailing for the seller. Not many short sale agents realize that, nor do their sellers.

I handle all sorts of Sacramento short sales. From Lincoln to Galt. From purchase money to hard money. From one loan to 3 loans. From strategic short sales to severe hardships, and HAFA short sales. From rentals to owner-occupied, and even an 8-unit apartment building. And the easiest type of short sale to negotiate by far, for most short sale agents, is typically a purchase money loan. Of course, due to the passage of SB 931, I'm also thrilled for sellers who have a refinanced first mortgage and can close after January 1.

But the thing is doing a short sale with a purchase money loan does not guarantee a release of liability from the bank. Some lawyers have argued that the terms of the loan in a short sale have been altered after a renegotiation with the bank. They say the bank might be allowed to pursue the seller afterward. Just because the short sale approval letter might not reference the right to a deficiency judgment doesn't necessarily mean diddly-squat. Like Dorothy standing outside the gates of Emerald City, you've got to ask for permission to see the Wizard.

The other thing is the bank might ask for a seller contribution. A purchase money loan in California is not a free ticket to Disneyland; it doesn't mean that if you click your heels together three times you'll go home. If a Sacramento short sale agent guarantees you that the bank will not go after you, fire that agent. Because an agent can't give you legal advice much less guarantees. A Sacramento short sale agent should advise a seller to talk with a lawyer. If you've got a question about release of liability regarding a short sale approval letter, for crying out loud, ask a lawyer about it, don't ask an agent.

Photo: Big Stock Photo

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Elizabeth Weintraub is co-partner of Weintraub & Wallace Team of Top Producing Realtors, an author, home buying expert at The Balance, a Land Park resident, and a veteran real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown, Carmichael and East Sacramento, as well as tract homes in Elk Grove, Natomas, Roseville and Lincoln. Call Elizabeth Weintraub at 916.233.6759. Put our combined 80 years of real estate experience to work for you. Broker-Associate at RE/MAX Gold. DRE License # 00697006.

Photo: Unless otherwise noted in this blog, the photo is copyrighted by Big Stock Photo and used with permission.The views expressed herein are Weintraub's personal views and do not reflect the views of RE/MAX Gold. Disclaimer: If this post contains a listing, information is deemed reliable as of the date it was written. After that date, the listing may be sold, listed by another brokerage, canceled, pending or taken temporarily off the market, and the price could change without notice; it could blow up, explode or vanish. To find out the present status of any listing, please go to elizabethweintraub.com.

Comments (4)

Wanda Kubat-Nerdin - Wanda Can!
Red Rock Real Estate (435) 632-9374 - St. George, UT
St. George Utah Area Residential Sales Agent

Great advice Elizabeth! I am not an attorney and do not even come close to pretending...I'll leave that kind of advice to those in that chosen profession!

Oct 15, 2010 04:24 AM
Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

Excellent post. Yesterday I read a blog post by a member here on AR, and he had a few lines what is needed for short slae and a few lines of what is needed for loan modification. If that was all that really needed, it would be a free ticket to Disneyland and far beyond

Oct 15, 2010 06:41 AM
Elizabeth Weintraub Sacramento Broker
Elizabeth Anne Weintraub, Broker - Sacramento, CA
Put 40 years of experience to work for you

Hi Wanda and Jon: I tell you what I fear -- and that is a lot of agents are going to be pulling their lives back together after the short sale dust settles in a few years and lawsuits start happening. I hear agents routinely telling sellers that a purchase money loan means the bank can't go after them and they don't know that. Plus, it also means they are giving legal advice. If there's enough money in it for them, banks will do whatever it takes to recoup their losses because they are in the business of making money, even though their actions at times might suggest otherwise.

Oct 15, 2010 10:25 AM
Melanie Ross
Coldwell Banker Solano Pacific - Benicia, CA
Benicia CA & Vallejo CA Real Estate, 707-319-2828

What does startle me is that if the words are not in there, and it was a purchase money loan and they short sale that the bank COULD possibly come back.  ACCCCCKKKK, there is NO get out of mortgage free card.  That given it is so scary if the banks will try to come back after those who short sale and it was a purchase money loan.  for everybody's sake I hope not!

Oct 15, 2010 12:44 PM