Today I met with a real estate attorney. I figured I could learn a thing or two by asking some of the most common questions that my clients are asking me. Honestly it was down right eye opening.
(Now I must tell you that nothing here should be interpreted as legal advice. I am not an attorney. In fact I have no legal background whatsoever.)
The number one thing I learned today from listening to the attorney go through my client's options is that all clients considering a short sale should consult an attorney first. Sure I am a Realtor and I only get paid a commission if the sale of the house is completed, but I was downright astonished at what I learned today.
Here are a few of my takeaways. (Remember this is only applicable in Arizona.)
#1 - I will say it again. There is nothing that can replace the advice of an attorney. Consult an attorney. If you don't know one, ask your Realtor for a referral to one.
#2 - A second mortgage can and most likely will file a suit against you if it was not obtained to purchase the home. If the second mortgage was financed at the time of purchase it is called a purchase money loan and then it should fall within the anti-deficiency laws for Arizona. If you took the second mortgage at any other time then it falls under a whole other set of rules.
#3 - Even if your promissory note for the second mortgage contract only specifies foreclosure on the property as the remedy under the breach of contract section, the Arizona statute supersedes that contract and the second mortgage can still file suit against you for the deficiency. This was a huge point to me. I would have never thought that something as well established as contract law would be superseded by an Arizona state specific statute. Contract law has been around since the beginning of recorded history (ok I don't know how long, but a long time). I was shocked to hear this.
I don't see how a consumer can be expected to understand what they are signing. We always recommend that our clients read everything before signing it. Now I am hearing an attorney tell me that even that isn't good enough. I am really shocked, concerned, flabbergasted, what other terms can I come up with?!? How could the courts allow a blatant misrepresentation within the loan documentation that a clients signs? It should be mandatory to spell out what exactly happens within the contract. I don't know what else to say.
#4 - It seems that the short sales can be a good option because some money would be paid to the second mortgage in order for them to release the lien. Some money paid to the second is better than none and should help with the future negotiations regarding the repayment of the second if applicable.
#5 - A person facing a possible short sale likely has about 6 different options. You can short sale the home, foreclose, pay the past due amounts and make the loan current, perform a deed in lieu of foreclosure, apply for a loan modification, or file for bankruptcy. These are all valid options and can not effectively be communicated to you by anyone other than an attorney. Have I mentioned that you should consult an attorney?
It seems like most real estate law firms have people on staff that can provide an initial consultation for somewhere in the ball park of $250. In my mind $250 is a small price to pay to have a clear plan as to how to deal with your current situation.
So here is my expert Realtor advice....Consult and attorney if you are considering a short sale before you do anything else!
About the Author
Bobbi Herman is a Peoria Arizona Realtor and has obtained the Certified Distressed Property Expert designation. She has been in business since 2005 and has helped many happy clients buy and sell homes in the Peoria Arizona real estate market.
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