A short blog post tonight on one of my pet peeves; the mishandling of short sale negotiations.
I've handled many NJ short sales; sometimes representing the seller and sometimes the buyer. I see clients, agents and attorneys alike getting caught up in whether or not the bank that holds the lien on the property will accept the deal. Certainly, if the bank does not accept, then there is no deal. We wait and wait for the bank to respond and by the time it does, everyone is so relieved that the deal has been accepted that they don't take the time to consider all the terms of the acceptance.
The issue is simply that while the lender agrees to release its lien on the property for less than full loan payoff, the bank does not automatically release its claim against the owner/seller of the property for the shortage. This means that the bank will retain its claim and will retain its ability to sue the seller for the difference, unless the agreement specifically state otherwise.
Maybe you'd think that this isn't so bad. After all, the seller did owe the money in the first place. But consider that the seller doesn't understand that the shortage will follow him/her. 99 out of 100 short sale sellers will assume that they are free and clear of the loan once the short sale goes through. Also, the seller is giving up something by going through with the sale. Without the sale, the seller could live in the home for many additional months at no cost until the bank forecloses. By selling short the seller has to vacate the home earlier than he/she otherwise would have to, and walks away with absolutely nothing. The short sale actually benefits everyone involved in the transaction EXCEPT THE SELLER.
So if you represent a seller in a short sale, take the bank negotiations one step further and get the bank to agree to release the seller from the shortage. It's not difficult. I haven't had a case yet where this couldn't be worked out.... but someone has to ask for it.
Thanks for reading. Jim
The Law Office of James M. Miner, LLC
Westfield Office Short Hills Office
533 South Ave West 7 Short Hills Ave.
Westfield, NJ 07090 Short Hills, NJ 07078