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short sale parachute

I work with a lot of short sale clients as their attorney in Springfield, MA. I give a lot of credit to the Realtors that I work with on these short sales because they can take a long time and require a great deal more handholding, etc. . . These days I find myself in the same position that many of you may find yourselves in with regard to the short sales that just don't go through: "What re-assurances can we really give these Sellers?"

The fact is we can only give so much. We can give ourselves and the best of our ability, but that is all. Short sales are a gamble. What we are gambling with is our Sellers' credit for the next 7 to 10 years and whether they will ever be able to purchase a home again in the foreseeable future. We cannot make the bank(s) accept the short sale if they want to proceed to auction. The stakes are high for our Sellers so if things fall apart we need to provide a back-up plan.

What we can do is  prepare our clients for the worst case scenario.  As an attorney I am  risk averse.  I offer short sale services and require a hold harmless with regard to foreclosure, tax consequences, damage to credit or any other losses should we succeed or fail with the short sale. (So much for reassurance, right?) The point is, like any one else, I am concerned about the worst case scenario coming back to haunt me. I do the same for my clients. At the first meeting I refer  my clients to a bankruptcy attorney and an accountant.  Many of my clients who have met with a bankruptcy attorney and myself (real estate attorney) at the same time feel  that no matter what happens they will be OK. We have a back-up plan that will leave them with an apartment,  some spending money and with no more debt and no more worries.

I want my short sales to succeed, but I want my clients to be prepared if we do not succeed. I leave my clients in a position where they are in control because they no what will happen and can make their own decisions with the information that we provide. Many of my clients have felt out of control for a long time.  That all changes after we meet.  We plan a bankruptcy if we fail at the short sale. We can save as much money as the bankruptcy court will allow and we can set aside our clients' first, last and security deposit if the short sale fails so that they can move in to an apartment. My  clients are ready to make the next move before filing bankruptcy.My clients are ready to move on if the short sale does not succeed.

Once the back-up plan is in place it is a lot easier for me and my staff to try our best - there is not as much pressure because our clients are assured that their lives will go on. . . Good Luck with all of your short sales and don't forget to pack your parachutes!. . . .

Comments (13)

Debi Braulik
www.roundrealestate.com - Maple Valley, WA
Selling Maple Valley to Fife WA Homes For Sale

I have negotiated short sales and it never occured to me about a hold harmless. Hmmm. I will have to think about that moving forward... Thanks for the "a-ha."

Jan 17, 2010 01:56 PM
Irene Kennedy Realtor® in Northwestern NJ
Weichert - Lopatcong, NJ


In my area of NJ, we use attorneys on 99.9% of our deals - and your post makes clear why they are so valuable!

Jan 19, 2010 04:34 AM
Nancy Conner
Olympia, WA
Olympia/Thurston County WA

Sounds like you are a wonderful resource for people facing short sale or other not so pleasant options - so true that thinking thru worst case possibilities and planning how to survive no matter what can reduce the feeling of helplessness.  Thanks for an excellent post!

Jan 19, 2010 05:27 AM
Ryan Case
Pacific Servicing - Temecula, CA

Why not let the home foreclose? With a short sale are the clients not leaving themselves open to the lender coming after them in the future? With a foreclosure all liens are wiped out and the previous owner has no further responsibilities, correct me if I am misspeaking?

Jan 19, 2010 05:38 AM
Nyles Courchesne
Peskin, Courchesne and Allen, P.C. - Springfield, MA
Massachusetts Real Estate Attorney


The goal of the short sale is to avoid the foreclosure and to have the deficiency waived. The transaction is reported as a debt settled for less that what was owed. For residential primary residences where there was no cash out through refinances etc. there is no tax consequence for the loan forgiveness.  This benefit has been extended into 2013.

With a foreclosure the subsequent liens are "wiped out" with regard to their effect on passing title, but the money is still owed under the notes.  After a foreclosure the amount that the bank receives minus the total amount owed becomes a deficiency balance which becomes a judgment against the borrower.  All subsequent mortgagees would sue on their notes.  All other lien holders would have suits already open.  Because foreclosure property does not sell at market value the deficiency after a foreclosure is usually a very large number. Because of the large size of these judgments most people are forced to file bankruptcy after a foreclosure.

In short, short sales area MUCH better alternative than a foreclosure most of the time!



Jan 19, 2010 06:07 AM
Wayne and Lynda Gomillion
Real Living Hagan Realtors | Pinehurst ~ Southern Pines, NC - Pinehurst, NC

We also prepare our clients for the worst case scenario and are risk adverse which is why a hold harmless makes perfect sense to us!

Jan 19, 2010 06:32 AM
David Cahill
Century 21 Cahill Associates - Boston, MA

Great post! This is why it helps to have an attorney on your side.  Us agents know how to sell and we have recently learn to negotiate with banks.  But we are not attorneys and the legal advice you give is very much needed.

Jan 19, 2010 06:49 AM
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Nyles, I can't imagine any one working short sales without a hold harmless agreement signed by the sellers. My sellers know up front that I will do everything I can to get the short sale approved BUT they may still get foreclosed on. I also can't promise that they won't have to bring cash to closing, sign a note or deal with a deficiency after the fact. If they believe they will get off scott free then chances are I need to turn down that listing.

Ryan, Listen to Nyles. Believing that foreclosure wipes out the debt is just wrong. Lenders have 2 instruments to protect their investment. The morgtgage (lien) and the promissory note. The note ain't going nowhere.

Of course I am not an Attorney and this comment is just my opinion.

Jan 19, 2010 09:44 AM
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

By the way Nyles, we could use another attorney over at shortsalesuperstars.com Come join us. We'd love to have you.

Jan 19, 2010 09:47 AM
James Lyon
Vista Pacific Realty - Sacramento, CA

Great information and we cant protect our clients enough in this type of market.

Jan 19, 2010 10:02 AM
Christianne O'Malley
Dickson Realty - Reno, NV
Exceptional Service - Delivering Results in Reno!

I do a Hold Harmless with every transaction, refer clients to tax and legal professionals, and disclose every step of the way. I make my calls wth other individuals present, and document every call. I know that in the future some people may not remember being told once or twice the ramifications of a short sale, but if I tell them at EVERY phone call throughout the process, with other team members who can substantiate the calls, along with documentation, that will go a long way IF I ever have a legal issue result from a client claiming they were not informed. CYA CYA CYA...all the way.


Jan 19, 2010 10:46 AM
Lou Mayo
Lou Mayo, REALTOR @ Real Living Realty Professionals - Belchertown, MA
REALTOR, Serving Western MA, Buyers and Sellers (413) 726-9300


Great post! As an agent who has used you for short sales I feel confident that you get the job done.  It is way easier for me to have your office handle the "fun stuff".

Jan 27, 2010 02:55 AM
MaryGrace Stewart
Coldwell Banker Residential Brokerage - Springfield, MA

I just wanted everyone to know that Nyles is the very best! Be assured all that this is unsolicited by Nyles. We just wanted to thank him. He just made the impossible possible in Springfield MA.  His persistence, creative problem solving and intelligence are unsurpassed. People who have been in this business for over 20 years are in awe. We just closed on a short sale that basically went to foreclosure and yet he was able to pull it back and get everything done within the bank's unreasonably short time frame. There were hurdles that seemed to everyone else to be insumountable but he called and asked and researched like crazy and called people some more and asked again and again till the answers were yes, but with less than 24 hours to close...and he got it done! Thank you Nyles!!! You've given us hope that there are still miracles in this world when they are made by people like you.

From, Barbara and MaryGrace

Feb 03, 2010 01:23 AM