Question:
Is there a way to get the first and the second to sign off on any deficiency owed. the first is getting 90% of their amount owed and the second is getting $4K of the $73K owed. They are saying this short sale does not release the Sellers of the full debt. I look forward to your response!
Respectfully,
Name omitted
Answer
Short sales do not automatically release sellers from the deficiency ( liablity for the remaining loan balances) your lenders are correct. Getting the release of a deficiency frequently requires negotiation and leverage. Unfortunately many "loss mitigators" incorrectly advise people not to worry about the paperwork because the seller is protected by the one action rule or some other official sounding concept.
First, I wish just once one of those clown would cite the law supporting that belief... then I would like them to explain why such a law would over rule a written aggreement to the contrary - which they just told the seller not to worry about. When you hear people making claims of a 85% success rate - Say succes at what? Compromising the future assets and salary of a the seller?
By the way some lenders do release the sellers from a deficiency in writing. Other lenders provide ambiguous and or deceptive writings. Please remember just because the seller has agreed to make a "contribution" to close the short sale does not mean the seller is automatically released from a deficiency.
What Can done to gain leverage over the short sale lender?
The most effective way to accomplish a good short sale ( in which the deficiency is released) is to gain leverage against the second from the start. Once the Notice of Default or Notice of Sale gets filed - the sellers option become much more risky and expensive. Going into default on both loans is exactly what many second lenders desire. How many of you have seen lenders demand more onerous terms as the sale date approaches.
By the time negotiations start many of the best strategeis are compromised. One of the best remaining is for the seller to reinstate the first and commence setting the lender up on lender liability issues. Within a few weeks I sometimes find myself speaking with the head of the loss mitigation department or corporate counsel. I frequently have to educate them on laws of California. I explain why the course of action my client is now following means they will never see a dime of my clients cash or other assets.
Unfortunately, all this is expensive. I charge legal fees and reinstating the first can be a major road block. It is far superior to set this strategy up (or other ones) before the short sale commences.
Note: In this particularly situation, I told the Realtor he probably does not wish to refer his client to me.
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In order to help Realtors represent their client in a professional manner - we will soon be offering our upside down analysis to Realtors throughout California. Right now my law firm has created working relationships with large national Franchise holder in South Bay San Diego (one of the epicenters for upside down homes) and a few select Realtors. Our goal is to help Realtors discharge their duties under NAR and CAR and help sellers get the information they need in the beginning. Over the next few days I will be figuring out how to make this work for a no brainer price.
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