Episode 8- Short Sale Risks

This Episode of “Use the Law”, Las Vegas lawyer David Rahm discusses the risks and the benefits of a short sale.

Many people are considering a “short sale” on their homes. This is because they cannot afford to continue to make their payments and, in many cases, because they are “upside down” on their houses. If you owe $300,000 on a house that is worth only $150,000, you have a hard decision to make. This is exactly why many people are looking into short sales. So, what is the upside and downside of a short sale?

The upside of a short sale is, if the bank approves the short sale, you sell your house for today’s market value. Then, you would not have to continue to make house payments on such a bad investment. The lender usually pays all of the costs of a short sale, so you do not have to come “out of pocket” at closing. This means that the bank pays the real estate commissions and the title company fees; so you do not have to pay money out of your pocket to sell your house.

What is the downside of a short sale? They can be significant! The biggest problem is that you have to make sure the bank is “waiving the deficiency” on your mortgage loan. This means, on the house mentioned above, if you owe $300,000 on the loan, but the house is only selling for $150,000, the lender DOES NOT COME AFTER YOU FOR THE REMAINING $150,000, plus costs, late fees, attorneys’ fees and related costs! Many homeowners have completed short sales and walked away from the house, thinking they are “free and clear.” Then, they find out they are being SUED by the bank for the remaining $150,000.
Realtors are NOT ATTORNEYS; therefore, they SHOULD NOT BE REVIEWING your short sale documents because they are not trained to protect your legal interests. You need an attorney to negotiate on your behalf to make sure you are not held liable for the remaining loan balance after the close of escrow.

This is especially risky when you have a second mortgage. The second lender usually is getting nothing out of the short sale and would be inclined to sue the ex-homeowner after the short sale is closed for the entire remaining second mortgage! Laws differ from state to state; and in many states, a lender may have several years to sue you for the deficiency.

Mediation

More about Mediation to come.

Episode 2- The Short Sale

This Episode of “Use the Law”, Las Vegas Nevada attorney David Rahm discusses the advantages and disadvantages of a short sale.

Podcast Transcript:

The Law Offices of the David Rahm Law Group receive phone calls every day from realtors wanting to know if we will negotiate, on their behalf to the bank, to obtain a short sale.  Generally, we say no!  The reason why is because the short sale process, is a long process.  It can be a long process and  with some banks it takes as long as 8 or 9 months to get them to approve a short sale.  Realtors tell homeowners, desperate homeowners all the time, “put your house up for a short sale.” Now we have no problem with that.  We recommend that as well.  But the problem is that even if you find a short sale buyer, with so many house on the market and not that many people chasing them; even if you find a short sale buyer, then you’ve got to submit the offer to your existing lender and get them to approve the short sale.  And you also have to be very careful to make sure that they’re going to agree to write off the difference instead of coming after you for the deficiency if you sell the house for less than what is owed against the home.

Realtors are not attorneys!  They are not qualified to negotiate on your behalf with the bank.  Many will tell you they can.  But, they are not experienced negotiators in this area.

I would caution you (the homeowner) that if you decide to do a short sale that you need to understand who your lender is, and what their process for approving a short sale is; and make sure that you can get your house sold and closed before it gets foreclosed.

I have many examples of clients coming to me and saying,
“I put my house on the market.  I quit making my payments.  The bank told me to quit making my payments.  They told me they would approve a short sale, and now they are trying to evict me; and they never approved my short sale.”

The banks are flooded with requests for short sales, and in many cases that is a process that can take three to six to nine months to get approved.  The problem is if you are in default on your mortgage the odds are just as good you’re going to get foreclosed and evicted from your house before the short sale gets approved.

The other problem you have is the prospective buyer doesn’t want to stick around for six or eight months while you try and get a short sale approved.  So a short sale is a valuable alternative to foreclosure.  It is a valuable alternative to Deed in Lie of foreclosure.   But it has its limitations, so you need to be sure that when you decide to go into a short sale you understand the process and how long it is likely to take to get your bank to approve it.

If you would like to have a FREE CONSULTATION with our Law Office we will help you in that process.  The short sale being one alternative, and a loan modification and possibly mediation, and possibly bankruptcy being other alternatives.

You should look at and consider all of your alternatives before you decide how to proceed.

To Schedule a FREE CONSULTATION, you can call us at 702-369-4663