I am not a short salespecialist and don't take short sale listings....however I do work with Buyers in purchasing short sale properties, as do my sales associates so want to make sure I understand certain potential risk management issues I have recently run across I thought I would also throw this out for feedback from the A/R community prior to updating my policy manual.
- Loan payoff "deficiency". Let's assume a short sale closes escrow and there is a $100k deficiency on the loan payoff. It is my understanding that unless the lender specifically and in writingagrees to forgive that $100k loan payoff deficiency, that promissary note continues and the lender can, should they decide to do so, file a lawsuit against the seller for the deficiency amount after close of escrow. Granted, this is a "purchase money mortgage" and we have anti-deficiency statues here in CA. However it is my understanding that anti-deficiency statues apply to foreclosures and do not apply to short sales. Therefore it would be important to make sure the lender is forgiving the deficiency amount. Has anyone had any experiences that would differ from this?
- You may be wondering..... if I and my sales associates only represent Buyers in short sale transactions, why would this be important to our risk management? Well.... I have read where some lenders are getting "creative" in trying to find ways to recover this deficiency.. and one of the things they are now trying is to attempt to create an undisclosed dual agency with either the listing agent, or the selling agent. For example, if either the listing agent or buying agent talks to the bank at any time, the bank might say..... "I thought, you as a real estate agent, was acting in my behalf to get this short sale done, so I can get a portion of my money back." The objective being to attempt to create the appearance of a "dual agency" with either (or both) agents, which if undisclosed violates the statute and creates a "negligence per se" potential risk exposure issue. (The "per se"being the number of zero's on the deficiency amount). So... to mitigate any potential risk should any of my agents communicate directly with the bank, I am having the bank sign a "Lender Non-Agency Agreement". I suspect this is similar to what a listing agent might also have the lender signed, however not doing short sale listings, I am just guessing. Any real life experience anyone has had in this potential risk area?
- Home Equity Purchase Act- I have also read where a short sale can turn into a Home Equity Purchase Act issue during escrow. For example, let's say you open escrow on a short sale... you get a pre-liminary title report showing no notice of default. You have consent from the lender and all is going fine.... then, unbeknown to you, during the remaining escrow period the lender files a Notice Of Default..... I have read where that action can potentially take the sale out of a "short sale" transaction and put it into a Home Equity Purchase Act transaction, assuming the transaction meets certain required criteria (purchaser is non-owner occupant, etc). If my understanding is correct, should the transaction now fall under the Home Equity Purchase Act, you can no longer use the standard C.A.R. Residential Purchase Agreement. You must now use a "Notice of Default Purchase Agreement" and follow the disclosures required by that Act. Has anyone run into this situation?
Thanks in advance for any feedback or real life experiences that you might be willing to share.
Larry Hansen, CPA and Broker / Owner
Calif Desert Realty