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Well, now that the probe has been lifted, the industry is said to become more aggressive. In addition to that the trend will increase in the coming year. A total of 88,303 pre-foreclosure homes sold in the fourth quarter of 2011. It is because of the the short sales that make up an increasing portion of foreclosure-related sales. And according to CNN, some lenders in especially hard-hit markets like Florida are even offering cash incentives to entice borrowers to sell short. Short sales are increasing, says a brand new study from RealtyTrac. The report determined that almost one-fourth of all U.S. home sales were foreclosure-related in the fourth quarter of 2011. Resource for this article: https://personalmoneynetwork.com/moneybl...hort-sales .
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It is best to do this: 1) Consult with a lawyer just long enough to understand whether the bank can later pursue the difference between the amount owed and the sales price (the deficiency), and under what circumstances it can do this. I have some thoughts but won't venture an opinion. 2) Find an agent who is comfortable with short sales and who will include a waiver of the deficiency, if such a waiver is determined by the lawyer to be necessary. Including such a waiver takes absolutely no skin off the agent's nose. In fact, let's remember what the word "agent" means -- they stand in for you and effectuate YOUR will, within the bounds of ethics and the law. NOT to do that is unethical in and of itself. If they won't include such a waiver, find another agent. 3) If a deficiency is possible and if the bank refuses to waive it in a short sale, you will have a new question, to be explored once you have that information in hand. The bank will also have a calculation to make: is it worth it to go through what will almost certainly be a judicial foreclosure process (legal fees, time, procedurally intensive papework) to retain any rights it may (or may not!) have to a deficiency, rather than permit a short sale and waive the deficiency (not much time, few or no legal fees)? Don't expect a rational answer.
I took a class on this subject almost 30 years ago for the sole reason that there was a really cute guy in that class that I was kind of attached to, like a passionfruit vine. I am certain that neither he nor I envisioned that one day he would be married with children, I would be living on a remote volcanic island and hundreds of thousands of people would have questions on subjects raised in that class and that our curmudgeonly professor who labored in a remote backwater of the law would be regarded as a guru on a subject that was almost purely of academic interest at the time. I was motivated to excel in that class for all the wrong reasons.
The foregoing is not legal advice. It is just a rumination, a remembrance, and an ode to irony. Glad I took the class although I felt like committing hari-kari after it as he just walked away with only a single, quick, short, sharp, glance back. Should I thank him or me? Ah....me. The motivation is immaterial. Only the grade matters.
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Just a couple comments on this thread:
1. Currently, you will not be taxed on the amount of the short sale. The Mortgage Forgiveness Debt Relief Act of 2007 exempts this from being treated as taxable income. That being said, check with your tax preparer to make sure. This law, I believe, may be set to expire at the end of 2012.
2. Why not just quit making payments? You signed a contract. The advise to walk away & quit making payments is irresponsible and part of the problem. Accept the responsibility and work your way out of it.
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quote:
You signed a contract. The advise to walk away & quit making payments is irresponsible and part of the problem.
Actually you signed a business contract that has methods to handle default. Defaulting may or may not be the proper business decision (each situation is unique because of the numbers). Banks and large corporations do this ( http://www.ajc.com/business/bank-of-amer...92392.html) without moral guilt and a home owner should feel the same way. You are fulfilling the obligations of the contract.
riverwolf - in spirit I agree with you. All parties are to blame. Unfortunately Americans have been swamped with marketing selling the "american dream" and the illusion of almost free credit. Added to this the propaganda that there are "regulations" to make it safe for you (thereby not requiring due diligence) and you have a good portion of the population that does not have the required skills to look at such a purchase with a proper investment mindset.
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A default can be caused by many different reasons, job loss, illness, reduction in income etc. Walking away from a debt because value has declined is not one of them, especially if you still have the income to support the debt. When you drive a car off the lot it depreciates significantly. I don't see people walking away from their car loans because they owe more on the car than it is worth. If you want to walk away don't cry when lenders won't lend to you. No one twisted your arm to sign up for a loan!
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Maybe a lender shouldn't loan money that is not covered by the value of the item loaned against (Of course they don't care because they just turn around and sell that loan to pension funds and other institutional investors).
Still the fact remains that the business contract does not provide for the reasons of the default, only that a default occurs and the what the parties are responsible for at that time. Banks letting people stay in the houses after default is not "kindness" on their part, they just don't want to produce paperwork (because it's faulty) or be responsible for the upkeep. Banks will perform actions that are a benefit to themselves without regard to your situation or a moral hazard (obviously), to put a moral burden on your end puts you at a disadvantage. The lobbyist for the banks made the rules.
My personal position is to carry no debt, it's a bad position to be in financially.
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quote:
Originally posted by Kelena
It is best to do this: 1) Consult with a lawyer just long enough to understand whether the bank can later pursue the difference between the amount owed and the sales price (the deficiency), and under what circumstances it can do this. I have some thoughts but won't venture an opinion. 2) Find an agent who is comfortable with short sales and who will include a waiver of the deficiency, if such a waiver is determined by the lawyer to be necessary. Including such a waiver takes absolutely no skin off the agent's nose. In fact, let's remember what the word "agent" means -- they stand in for you and effectuate YOUR will, within the bounds of ethics and the law. NOT to do that is unethical in and of itself. If they won't include such a waiver, find another agent. 3) If a deficiency is possible and if the bank refuses to waive it in a short sale, you will have a new question, to be explored once you have that information in hand. The bank will also have a calculation to make: is it worth it to go through what will almost certainly be a judicial foreclosure process (legal fees, time, procedurally intensive papework) to retain any rights it may (or may not!) have to a deficiency, rather than permit a short sale and waive the deficiency (not much time, few or no legal fees)? Don't expect a rational answer.
Thank you,Kelena! That was a great comment!
So it's late for my friend to change a RE agent ( the contract is for 6 months) but not late for those like me who are concerned about the future and want to be prepared.
My take on this - don't have a RE at all if a short sale is what to expect realistically.I'd pay a couple of hundreds to get it on MLS and hire a RE attorney when it's time to deal with the bank.
To all who answered -thanks a lot.
Not it that really matters for the question but in my friend's story there is a job loss,death in the family and the house was purchased to live in,not to sell and make a profit.
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I think what you mean is there is a listing agreement with this agent for the duration of 6 months. I would still say that your friend can direct that agent to put in the contract of sale any legal thing your friend wishes to. Your friend could say, for example "Washer and Dryer Excluded from Sale", or "Home is as is", or "Conditioned upon lender waiver of deficiency", or "Buyer responsible for repairs to broken window".
If your friend's agent unreasonably refuses to put this in a listing, I can't imagine there wouldn't be a remedy, including getting another agent and daring the other agent to enforce the listing agreement.
The foregoing is not legal advice. It is crazy-cat lady ramblings, except I am no lady and I have no cats.
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The short sale situation is difficult because the title owner is selling to the new buyer, so the contract is between the new buyer and the old buyer. But the old buyer is not "the real party in interest", the bank is, because the bank owns what ever value is left in the house. Banks therefore have all the rights (to turn down the sale) but none of the responcibility. (They don't really have to do anything if they attract no sale.) So, the real estate agent can't put a clause in the contract with the new buyer. The new buyer is not the one holding the loan. The real estate agent has every incentive to get the bank to approve the sale. Normally, they would not care about the deficency. You might be able to get the real estate agent to push a "no recourse" provision on the bank while trying to get an approval. But the bank, and the seller, don't really have all that much leverage with the bank. If the bank is a mainland bank, it probably does not even want to take the time to talk to the seller and her agent.
Aloha,
Rob L
Aloha,
Rob L
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Probably the best way to put this is that the contract is between the seller and the buyer. The seller is, of course, the previous buyer of the house. But with respect to the current contract, the seller is the seller (and not "the old buyer"). And so,in the instance of my Hawaii house, I was the buyer and the seller was the person who was on title to the house and who had the obligation on the mortgage. To protect her privacy, I will just say she was a widow and leave it at that. Also, to protect her privacy, I will not say whether the contract of sale included a provision waiving any deficiency. But it could have. All it takes to have such a provision is to include it.
You do not need the approval of a bank OR of a real estate agent to include a provision waiving the deficiency. It will be included if you so direct it. The bank may then accept it or reject it.
The foregoing should not be regarded as legal or real estate advice. I think the slugs have been eating my brain or my dog has licked a buffo and then kissed me. Consequently, you and everyone else should make their own decisions without respect for whatever words accidently slip from my lips.
Everything between the buyer and seller in a short sale is contingent upon bank approval. You don't "push" it. The seller simply includes it in the contract and the bank either approves it or doesn't.
Whether the bank approves it is subject to a myriad of factors, including arbitrariness. The trend, however, is for banks to approve such a provision as it is also the trend in some influential states to make it more onerous to pursue a foreclosure. Foreclosures are either through a trustee's sale (on the courthouse steps sometimes) or through the filing of a lawsuit (a "judicial" foreclosure). Some states require a form of mediation before allowing a foreclosure on the courthouse steps (non-judicial foreclosure). Some say this drives lenders into judicial foreclosure, which is cumbersome, expensive, requires paying an attorney for multiple court appearances. Others say it makes some form of settlement more attractive.
In any case, while neither the seller nor the seller's agent can apply "leverage", they can include a waiver of deficiency in the contract, which was the original question ("Does my friend need to get a lawyer..."). No, your friend doesn't need to get a lawyer to include this provision. Your friend may need a lawyer for a number of other reasons (e.g., advice on tax consequences, advice on whether you need a deficiency waiver in the first place). But your friend does not need to have a lawyer include this provision in the sales contract, which is between buyer and seller, and which is conditioned upon the approval of the bank of the terms of the contract. It would not be imprudent to have a lawyer REVIEW the language in the contract ("Bank hereby agrees that it's only recourse is to the property and that any deficiency between the sales price and the amount owed on the mortgage is hereby waived").
I would reiterate the motives of the agent are irrelevant. They stand in for the seller (unless they are a dual agent -- a situation best avoided). And so the seller can tell the agent to include whatever provision the seller wants.
The transaction on my Hawaii house was handled by a mainland bank located just a few miles from where I was then living. All they did was review the paperwork, meaning, the sales contract.
They allowed the sale to go forward.
Edited to clarify that the transaction was handled by real estate agents and an escrow company as per usual, but the seller of my house had approval from the mainland bank to allow the transaction to go forward.
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