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Short sale adviser, attorney, Homeowner's solutions

By
Real Estate Agent with McConnin & Company Realty

The homeowner should be in a better position after electing a Pre-foreclosure solution. A Short sale improperly  negotiated with the bank or potential purchaser may leave the homeowner in a worse position.  Short sales are very fact dependent, they are not a one size fits all solution.       

A short sale is just one of the options an upside down or nearly upside down homeowner should consider as alternative to foreclosure.  In light of the fact many attempts at a short sale fail, a homeowner must be ready to go with plan B and even plan C.

When first contacting a bank a homeowner or their representative might ask for a short sale packet.  However, some banks are wisely calling it a Pre-foreclosure packet.  Pre-foreclosure solutions should include the full set of tools a homeowner may consider.  In my opinion none of the tools should be employed without consulting with an attorney.  Of course some of the most important tools do require a Real Estate Professional to price and sell the property.  

 Here is part of a good pre-foreclosure toolbox.  

 

Legal Solutions as Leverage 

1.  Does the homeowner have any legal remedies which might be available to use as leverage against the lender? 

For instance might there be evidence of Predatory Lending? Was the homeowner given a new interest rate right before the closing? Might a attorney explain to the bank that the current workout is better than the one a court might force a bank to accept in a bankruptcy situation.   

 

Keeping the Home 

2.  If the homeowner wishes to keep the house - can he or she accomplish some sort of workout with the existing lender or a new lender. 

 

Selling  the Home or Deed in Lieu

3. Does the homeowner wish to sell?

Is the home underwater?  Why might the homeowner offer a Deed in Lieu?

How can we leverage a falling market and an offer of deed in Lieu?  

Will the bank respond to a lawyers request for a short sale more promptly than a Realtors?

How will the home be marketed and sold.  Should we look to sell to an investor?

What is the fair market value of the property?  Will a fair market value listing price get the home sold in the cuurre market?  

 

Surprises 

4. What is a deficiency?  Is the homeowner aware that in some situations the bank may seek a deficiency judgment?  Is the client aware that if the bank gets paid less than it owes, the homeowner may be responsible for paying tax on the debt forgiven?.  In other words a $100,000 short fall to the bank may turn into $100,000 dollars worth of income to the homeowner.  This income might even bump up the homeowners tax bracket and cause a $30,0000 dollar tax increase or more.     

Can a lawyer leverage his legal skills to eliminate or minimize this problem?  Depending on the facts, there is no doubt about it.  If the debt is disputed, part of the negotiation may include getting the bank to agree the debt is paid in full by the proceeds from a sale.  

 

Other Options 

5.  What can a homeowner do if there are no buyers for the short sale?  This is where the need for Plan B arises.  

 We will discuss more about plan B on a future blog.   

 

     

 

Anonymous
Anonymous

Hello John, I am a broker in San Diego and do only mortgages at this time.

From our marketing we have people that call that are over encumbered and the only road is foreclosure.

I would like to offer to help negotiate a short sale and let them stay in their home with a lease purchase contract so they can get back on their feet. Or negotiate the short sale, just helping them get out and forgo foreclosure.

Where can I find more information about what I can and cannot do?

Your help is much appreciated.

The scenario for the lease purchase would be as follows:

 Owes $120k, home is worth $100k.  I negotiate the sale for $80k.  My loan is much better interest rate and is at a lower amount.  I have them just pay my mortgage, taxes and insurance for a year.  In the contract it would allow them to buy the home for TODAY's value, 100k, in one year if they make all their payments on time.

 

 

Aug 21, 2007 12:39 PM
#1
John McConnin
McConnin & Company Realty - San Diego, CA

You are suggesting an interesting transaction.  All of my comments regarding Realtors needing a lawyer on their short sale team have been directed to situations where a Realtor is the listing agent or has some sort of fiduciary duty to the seller.  

In your situation you are coming in as a buyer who is offering a sale with a lease and an option back to the seller (provided the bank takes a short payoff.)    

At the moment I am not sure if it can be successfully argued that the buyer has duties towards the seller when negotiating a short payoff with the lender.  I am sure some plaintiffs lawyers could make such an argument, but will courts go for it?  (If you have a Real Estate license it will be more complicated.)

However, if your seller were to call a lawyer and ask the lawyer to review the deal - the lawyer could look at the transaction in two parts.  Is your deal fair fair to the seller (it could be if it is well structured) and will the short payoff expose the seller to a deficiency or tax liability.   (and if so what can be done to minimize the exposure).

If all the paperwork is organized and presented to a lawyer, he or she might be able to review the whole deal for 2-3 hours work.  It seems like such a small price to pay, I just do not know why a seller or a Realtor would skip such an important part of a transaction when hundreds of thousands of dollars are at stake and potential for liability is so high.  

So to answer your question directly, if you are attempting to come up to speed on the subject, you should learn all about California's anti-deficiency laws, and the one action rule.  The net is a good place to start but there is contradictory information on the net.  So then you have to go to the law library.  

With respect to tax laws.  The IRS puts out some good information.  

Best practice  --- as a person buying these properties from the seller I would advise you to refrain from giving any advice to the seller.  In fact, I would make the seller sign a statements saying you advised them to seek counsel from an attorney licensed in California.   

 

 

 

Aug 22, 2007 06:24 AM