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Wednesday, December 14, 2011

More on the Intertwined Sticky Tricky Cobweb Net called Short Sales

There’s no doubt about it, short sales are going to be around for a while.  But they’re not for the newbie nor for those with a short fuse.  Buyers and sellers both need to take a deep breath, cross more “t’s” and dot more “i’s” than you ever thought possible and remember, “it aint over ‘till the fat lady sings.”  And in some cases, that fat lady could be singing and knocking on the door some six years after the short sale closes.

Yep. Nothing’s easy with a short sale and nothing is short either!

Real estate attorney and short sale guru Scott Drucker gave some great insight and advice the other day about short sales that buyers, sellers and the real estate agents on both sides of the transaction should note. 

Before I go on further, you’ll need to note:  I’m not an attorney and make no claims to be one.  If you’re looking for an expert, seek one out and get legal expertise.

Many know that Arizona is an anti-deficiency state.  Not many know what that means and/or what they need to know or do to ensure the lender isn’t knocking on the borrower’s door some six years later wanting to collect the amount owed.  Some agents are telling their sellers incorrect information about a deficiency release and the law suits are ramping up.

Here’s a few notes – just the tip of the iceberg, mind you – you and your agent must consider:

Before the property closes, the seller will want to obtain a written deficiency waiver.  Ah, you may say that sounds simple.  Trust me, it’s not.  More often than not, the waiver the seller gets may not be adequate.  The language in it may be unclear and not sufficient enough to prevent the bank coming back looking to collect the amount owed.  If you were a seller on a short sale, pull out the deficiency waiver and read it.  Better yet, have an attorney read it and give their opinion. 

I’ve seen short sale homes under contract for 2, 3, 4 or even 6 months or longer.  If we’re lucky, the buyer will hang in there because they love the home.  The unfortunate part is that a seller may have to cancel the transaction just before it is scheduled to close because the language from the lender does not adequately release the seller of the debt.  That leaves the buyer with nothing. No home, countless months and emotions that have been wasted and they’re back to square one. And, the seller loses the home to foreclosure and gets a hit on the credit.

Scott often talks about the 3 magical words he looks for in a deficiency waiver: release, waive and deficiency (or “full satisfaction of the mortgage debt”).  And, the release needs to apply to both the lien and to the debt.

If you’ve been down this road, you likely have a 1099C.  Just because you were issued a 1099C, that does not release you of the deficiency.

My advice to you, a potential seller considering a short sale: Get legal advice from an expert like the folks at Mack Drucker & Watson.  They offer a couple of different programs – affordable programs that will keep you back side covered.  From a consultation and document review from start to finish to a full service negotiator on your behalf.

Photo credits: Cobweb from Flickr courtesy of Jonathan Camp. Debt photo from Flickr courtesy of alancleaver_2000.

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