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Short Sale Law, Anti-Deficiency Law Short Sale Law

FAQ

1. Issue -  Despite Realtor hype lenders like Bank of America refuse to release the sellers from liablity for their remaining loan balances in Realtor negotiated short sale deals.  

Answer -

Realtors are presenting their clients with what we frequently consider incomplete and dangerous short sale "approval" letters.  Sometimes the Realtors do this out of ignorance and sometimes they do it because they are running big marketing budgets and they just do not care about their client's financial future.  

As of the date of this writing, we are aware of only a few CA licensed attorneys (who like us) are able to get BofA to release the deficiency in writing.

1.a. What part of a short sale is a Realtor licensed to negotiate with the lender. 

The correct answer is no part...   but Realtors do it any way.  We understand some sellers and some Realtors can not afford to bring an attorney on board... but we do believe that any responsible Realtor will bring in a CA licensed attorney to review the important parts of the transaction with you.     
 
We are sensitive to the callous marketing advice provided  by self proclaimed "leading So Cal short sale Realtors" on their websites in which they attempt to steer website vistors away from attorneys.  Our advice is to see the CA short sale listing addendum.  Realtors can make excellent commissions from selling short sales.  If they are not providing you with access to an experienced attorney... there is a reason. 

If you really wonder about the scope of a Realtor's license... ask if he or she is  allowed to draft new clauses for the CA Purchase and Sale agreement.  Or, ask if a Realtor is licensed to cross out any of the words on their forms?  Once a Realtor reflects on the limited scope of their license... they should not pretend they can advise you on issues which could leave you in debt for hundreds of thousands of dollars.    

2.  Issue - Many Realtors Websites claim they have 90% short sale success rate, yet statistics show Realtors as a group close less than 25% of their sales. 

Answer -

This is Realtor hype and it usually the sign of a Realtor dangerous to your financial future.  It is one thing to get 90% of your short sales approved, it is quite another to advise your client to close on 90% of your deals.  Realtors making claims of a 90% success rate are not advising their clients that in many short sales Bank of America and other large banks are going to continue to have a right to harm your credit and come after you for the remaining loan balance.    
There are Realtors who do care about your financial future and if they are not lawyers themselves they do pay for you to have a CA licensed attorney review your short sale paperwork.  We suggest you work with Realtors who care about their fiduciary obligations. 

What are the seven things lenders fear?

1. Informed borrowers who utilize the full force of California anti – deficiency protections.
2. Informed borrowers who have attorneys review their short sale terms.  (many banks accept the short sale and then pursue the borrowers for the deficiency later.
3. Borrowers who decide to assert their legal rights prior to going into default on their loans.  (or starting a short sale.) 
4. Sellers who care enough about their assets or future earnings to ensure their transaction is set up in way to most benefit the seller, not the Realtor, the lender or the buyer.
5. Homeowners who hire experienced negotiators.
6. Homeowners who request the lenders prove they have a right to service the loans.
7. Homeowners who ask Bank of America to prove BofA or Countrywide made the proper lending disclosures.

Upside Down?

1. Ask for a copy of the the California Association of Realtors Short Sale Listing Addendum;
2. Ask your “Short Sale Expert”, home many short sales he or she has closed;
3. Adk to see the Realtor's five most recent short sale approval letters;
4. Ask for all Legal advice to be in writing... such as will I be released from the deficiency;
5. Taxes owed to IRS and the CA franchise tax board. Ask for written answers;
6. Who reviews the escrow instructions and legal releases - who larger is the deficiency;
7. Is it better to stay current with senior loan or junior loan under California law and why;
8. Ask your short sale expert why a homeowner with “Purchase Money Loans” might want to take a foreclosure rather than risk being responsible for loan balances; 
9. Is it ever better to let an investor buy your property; 
10. Ask your short sale expert when he or she closed their first short sale?  Get the mls number;
11. Ask what percentage of your short sale listings have closed;
12. Ask when it is not so smart to turn over your financial information to the lender; and
13. Ask for a comprehensive workout plan in case this short sale does not work out?
14. Lenders such as Bank of America and other lenders may not release you from your remaining loan balances.  However if you are able to explain the correct law to them, they may give you a side agreement or they may even change the terms of their approval letters in writing... However so far we have only seen this accomplished by Attorneys. 
15. After a short sale you will get a 1099 for the deficiency.  Make sure you understand your tax exposure before you sign your short sale paperwork.
16. Note that the National Association for Realtors stated that approximately 80% of properties listed as short sales turn into foreclosures.  How can that be when there are so many "short sale experts" running around?  If you short sale team has not closed at least 10 short sales and has not closed more that 50% of their short sales, perhaps you should be looking elsewhere.   
17. If you are not released from the deficiency in writing, do you have you a  backup plan?
18. On the flip side some Realtors brag about 98% success ratios? Oddly, some of these Realtors provide their short sale approval letters right on their site. As you read the approval letters you will see many of the approval letters make no mention of a release from the remaining loan balance. (A release of lien is not a release of the remaining loan balance. A release of mortgage complicates matters because we do not have mortgages here in CA we have loans and notes.)
19. Should a short sale expert understand that some lenders are pursuing the deficiency after a short sale?  Should a short sale expert understand the legal side of a short sale negotiation?  Real Short Sale experts have attorneys on your team. 
20. All these recent bank bailouts have emboldened the lenders to make your loan workout options less desirable. Prior to the bank bailouts, many lenders agreed to release the sellers from deficiencies in writing. Now negotiations are much tougher.  
21. Do you realize that many prominent Real Estate trainers are telling Realtors they must market for short sale listings.  Some trainers advise Realtors to claim the title of short sale expert during short sale training classes.   Unfortunately, no one is there to protect the consumer from marketing hype.  Our advice – trust but verify. I would say there are only a handful a Realtors who really deserve the title short sale "competent" and I wonder if any should be claiming expertise.    (Lawyers cannot claim to be short sale experts.)  Since I am both a lawyer and Real Estate broker I will avoid the expert designation. 
22. Foreclosure timeline
23. IRS info regarding non-recourse loans vs. recourse loans
24. Suggestions on steps you may wish to take prior to commencing a walk away or short sale.
25. Why a short sale will not save your credit score but it may help your credit history. A short sale and a foreclosure do the same damage to your credit according to the FICO people. But, find out why that may not be true for everyone.
26. more...
27. Whether principle reduction on your senior loan is likely.
28. What you can do make sure your second lender is powerless to collect against you.
29. When principle reduction on your second is likely.
30. How will a loan mod affect your credit?
31. more...
32. Find out why some California home owners are forcing the second lender to settle for 20 cents on the dollar or less.
33. Find out when a short payoff makes sense as a first step, prior to short sale or walk away. 
34. Find out what effect a short payoff will have on your credit.
35. Find out why it may be smarter to stay current with your first prior to foreclosure
36. What is a deed in lieu?
37. Does a deed in lieu mean an automatic release for a deficiency
38. Do you always have to attempt a short sale prior to negotiating a deed in lieu?
39. If you are going list the property, how long is the listing and at what price?
40. What should you watch out for in a Deed in lieu?
41. Find out why most Real Estate agents do not have the skill set or team in place to get a short sale done.
42. In a well negotiated short sale the lender pays for the Realtor fees and the lender may absorb delinquent property taxes.  But, what about HOAs and bonds?  
43. In our opinion if your Real Estate agent does not have someone in their office calling the lenders in a proactive manner your odds of success go down dramatically. Most realtors do not even have their own office. Short Sale negotiations are not for amateurs or part timers.  
44. Without experience negotiating short sales how is your Realtor going to know when and how to counter the buyers and the Lenders.  This not even close to a typical real estate transaction.  Our brokerage has closed dozens and dozens of short sales and we are still improving our techniques.  (And adjusting to the lenders always changing procedures.)
45. Without experience, how is your Realtor going to know how to "stack" your short sale package so that it has the best shot at getting through the lender's screeners?
46. Countrywide - Bank of America  told us they get 100,000 faxes a day, Chase told us they get 1500 new short sale offers a day. Bank of America is overwhelmed. If you agent does not have the experience or legal punch how do you know your offer will not sit on the bottom pile.  All the while the foreclosure countdown is ticking away. Wouldn't it be smart to have an attorney ready to fire off letters at the right time to the right place?
47. See our list of recent short sales in the San Diego area alone. We know how to get short sales done.
48. Find out why so many Realtors do not know how to price a short sale listing.
49. In short you need a Realtor, an experienced short sale negotiator and lawyer on your team. 
50. Does your Realtor have the experience to know when and how to push the lender for better short sale terms. Did you know that many lenders are asking the sellers to contribute 10% or more of the deficiency to the closing? And some of the lenders releases do not release the seller from liability for the remaining loan balance.
51. Does your Realtor know who to sell homes in a down market?
52. Does your Realtor know what to do when the lender agrees to so a short sale on their terms, not yours?
53. Some lenders can’t prove they own the loans.
54. Some loan servicers cannot prove they are legally entitled to service your loans.
55. Some lenders have appraisal issues.
56. Some trustees can’t prove they have a right to foreclose.
57. We have used RESPA requests and loan audits to gain leverage against the lenders.  Is this important, it may be if you have future assets to protect.   
58. Minimize or eliminate your liability for your remaining loan balance.
59. Minimize the damage to your credit or your ability to buy a new home.
60. Minimize or eliminate your tax liability to the IRS or the California Franchise Tax Board.
61. If you list for a short sale the bank pays your commissions. 

Should you hire a short sale “expert” to stop your foreclosure?

Many short sale experts would have you believe that a short sale is the cure all for your upside down real estate problems. But, that is not necessarily true, there are all sorts of complications which few Realtors understand or explain:

If you wish to determine whether a short sale is for you click here .

Strategic Default - Walking Away or accepting a foreclosure. Sometimes a foreclosure is the much safer and much less expensive option; find out if you can walk away safely with our Walk Away Plan.

Loan Modification

Short Payoff for Junior Loan

Deed in Lieu

Short sales – should only be listed by experienced Brokers

You may also wish to consider gaining a tactical and perhaps even legal advantage against your lender with a RESPA request or Loan Audit

Now the good news about short sales and loan workouts.

With the right workout plan, you may

If your home is in Southern California and it is not currently listed with a Realtor Call (760) 896-4663  or (800) 608-8311 for your free 5-15 minute consultation.  We have a short sale transaction managment you may wish to consider as well.

Or fill out this from for our free California guide to Successful Short Sales.

Short Sale Questions for your Short Sale specialist

Before you get started on your San Diego short sale, Orange County Short Sale or any other loan workout you need to know the answers to a series of questions.  Some of the questions you should be considering   asking are:

1. Do you have recourse or non recourse loans.  (in other words can the lenders recover the short fall if you take a foreclosure?  Can you explain 580b, the one action rule, the security first rule, the doctrine of merger?  How do they apply to short sale? How and when can you use those rules for leverage?

2.  What will you tax liability be to the Federal Government?

3. What will you tax liability be to the California Franchise Tax board?

4. What will the credit consequences of your loan workout be?  Will disputing the debt help you?

5. If you have two loans should you consider staying current with the first and negotiating a short pay with the second? 

6. How many short sales has your short sale Realtor completed recently?

7. What will you do if your lender requires a contribution of 20% of the loan balance?  What will you do if the lender refuses to release you from the deficiency in writing? With some lenders like BofA you already know their standard short sale approval letter will not release you from the deficiency.  So why not put pressure on them before you walk right into the trap they set for some Realtors and their unfortunate clients.  

9.  Ask your Realtor to produce the California Association of Realtors short sale listing addendum. 

Have him or her read it to you and then ask if them if they agree with the admonitions and why? and  

10.  If you are considering listing your property as a short sale and one of the Realtors you are considering claims to get releases of deficiency on all his or her short sales, ask to see the deficiency releases on their ten most recent sales.  Why risk your financial future with someone who is not willing to play it straight with you?   

11. Why is the wording in those approvals so important? 

Just recently the New York Times and Realtor.com magazine put out articles saying lenders are starting to sue sellers for the deficiencies after short sales. 

(Note, a release of mortgage, a release of lien, a charge off, or a report to the credit bureau as settled is not the same as a written release of liability for the loan.) 

Fannie Mae says that the servicer (lender) will be planning to seek repayment of the short fall unless the payoff statement says "full and final settlement of the debt" or similar language.  Exposure to a Six figure deficency is not something which should be left in the hands of amateurs.)

Before you agree to do the short sale, make sure you get a legal opinion in writing that you are being released, by the lenders, from the underlying loan obligations.  The loan forgiveness legislation passed in December 2007 did not release you from the deficiency balances on the loans, nor did it relieve you from paying taxes to the state of California.        

Note:  if you are planning on a short sale and you have two loans, we suggest you learn why and when you may gain leverage by staying current with your first. 

Many seconds are now completely sold out; Yet many, if not most, short sales are not closing because the second lien holders are demanding a great deal of money to release their liens.  Why?  Because lenders like Bank of America go after the seller for most, if not all, of the loan.  Do not risk your assets, perhaps 25% of your salary and your future by working with amateurs.   

We can suggest multiple strategies which can work.  But, the best strategies must be deployed before you start the short sale process.  To learn more,  just fill out  our Upside down analysis. 

Use California's anti-deficiency laws to your advantage. 

To find out more about short sales, deed in lieu, foreclosure, and more;

click here

Short sales, loan modifications and pre-foreclosure workouts  or

san diego short sales

Note: we are not anti-Realtor, we believe Realtors should do what they do best, which is to help people buy sell and market real estate.

When assets and future salaries are on the line...   

John McConnin, Esq.

McConnin & Company Realty

Real Estate Broker and Attorney at Law

CA Department of Real Estate  # 01445675

California State Bar # 154852

Office:

McConnin & Company Realty

2888 Loker Ave. East, Suite 316

Carlsbad CA 92010

and

101 West Broadway, Suite 1050

San Diego CA   92101

We work with people throughout the state of California.

We can also refer you to a top short sale Realtor in areas outside of Southern California.

john@favoriterealestate.com

800.608.8311

Our San Diego Short Sale Listings click here. 

Short Sales, Deeds in Lieu of Foreclosure and  San Diego Loan Modifications, CA loan modification, Walk away plans, loan workouts. foreclosure advice

John McConnin and McConnin and Company Realty are members of the San Diego MLS and Orange County MLS.  Due to reciprocity between southern California MLS systems we can and do list and sell property all over Southern California. 

Orange County Short Sales and San Diego Short Sales.