I've been negotiating short sales for my clients (and other agents clients) for the past 4 years... things are constantly changing! It is so very important to advise EVERY short sale client to seek legal counsel. A $350 consultation is well worth the information they are going to get from the attorney. Grant it, I've been to so many of these consulatations that I could pretty much give them very sound advise, but there is one caveat: I am NOT an attorney. Also, I always insist on my clients speaking to a tax professional as well before moving forward with the listing. I like my clients to have all of the cards on the table before they decide which hand to play.
POTENTIAL DEBT RECOVERY
Advise the seller to seek legal counsel. The state you are in is either a DEFICIENCY or NON-DEFICIENCY state. Deficiency State is where a seller can be sued after they have been foreclosed upon. In a NON Deficiency state, the lender cannot pursue any balance after they have foreclosed. However, if there is a 2nd or 3rd lien-holder (or any other that did not take the foreclosure action) they can pursue the unpaid balance of a note, depending if the loan is RECOURSE or NON-RECOURSE. By performing a short sale, instead of foreclosure, the one-action rule and the deficiency protections are no longer applicable. The Seller in a short sale will have a tax consequence. Sellers in a short sale may also be sued by the lender for breach of non payment of a contractual obligation. The lender can generally only take one action or the other, NOT both. They will either cancel the debt by sending the seller a 1099-C at the end of the year the short sale took place OR they will pursue the unpaid balance.
Every client situation is different... Primary Res, Investment, Recourse vs. NonRecourse, Multi Unit, SFR, Purchase Money, Refi Money etc... To cover your bases, to protect YOURSELF and your client- have them speak to a RE Attorney. Go and meet with a couple of attorneys, interview them and align yourself with them. Create a referral relationship with them... It can be a mutually beneficial relationship. At the VERY LEAST you will be doing your clients a favor!
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