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The following is not to be construed as legal advice. Consult an attorney today to learn more about your rights.
A short sale is a sale of real estate in which the sale proceeds “fall short” of the balance owed on the note and deed of trust. The note holder or “investor” has been granted a secured interest in the property through the deed of trust. The deed of trust is recorded with the Register of Deeds in the county in which the secured property is situated.
The note is serviced by a bank or a note servicing company (servicer). The bank and the note holder can be the same entity but are usually separate. The negotiation of the short sale is the process in which the seller, usually through his real estate agent or attorney, negotiates a release of the secured interest in the property in order to allow the property to be sold to a third party buyer for an amount less than what is owed. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the “deficiency.”
The bank will typically determine the value of the property by determining the probable selling price from an appraisal or Broker Price Opinion (BPO). The bank knows from experience that a “market price” short sale offer will not only save them the time and expense of a foreclosure; the time, trouble and expense of taking title to the property after a foreclosure and selling it through their REO (Real Estate Owned) department; but will usually bring 15% to 20% more than if it goes through foreclosure.
The North Carolina Bar Association has stated, “Generally, a real estate agent can negotiate strictly financial terms on behalf of the client. Once questions arise about the legal rights of the client, such as whether a deficiency judgment may be entered or if there will be a complete release of liability or if there is a pending foreclosure, the agent is no longer negotiating financial terms, but is negotiating a legal settlement. That would be the practice of law.” Undertaking short sale negotiations when the foreclosure process has already commenced leaves agents open to the liabilities and responsibilities normally associated with an attorney. There are also issues concerning the unauthorized practice of law. The Unauthorized Practice of Law is a Class 1 misdemeanor criminal offense that may be prosecuted by the local district attorney. There are also issues with agents undertaking short sales as related to the North Carolina Debt Adjuster Statute. The violation of this statute also could expose an agent to criminal liability. Get in touch with us for further explanation on why hiring Wilde Law Firm, PLLC to work on your short sale protects your interests.
The Seller’s Agent has two main responsibilities in a short sale: 1) help gather the required financial and hardship documents from the Seller, and 2) be present at and prepared for the BPO/Appraisal ordered by the lender. The Buyer’s Agent’s main responsibility is to make sure that the Buyer is qualified financially and will be able to close within 30 days of the short sale approval. If the Buyer is getting a loan, the Pre-Qualification letter must be submitted in the short sale package. If the Buyer is using cash they will need a Proof of Funds.
Sending in a complete short sale package for review to the lender the first time makes a big difference with regards to the timeline for a short sale to be completed. The Short Sale Package is fairly standard throughout the industry. Some banks will have additional documents for the parties to sign. A familiarization with the documents typically deemed necessary by lenders for a complete Short Sale Package can ensure the short sale process moves along smoothly and expeditiously. Missing documents slow the process down because in some instances the review will not proceed unless certain documents are received by a lender’s loss mitigation department. This is why you should speak with one of the experienced short sale lawyers at Wilde Law Firm, PLLC today. Since the foreclosure process many times does not stop while a short sale package is being reviewed it is important to get the package reviewed and approved before any pending foreclosure sale date. The short sale attorneys at Wilde Law Firm, PLLC give the careful attention necessary to each file to guide a short sale to successful completion.
There is no definite time line and each case is different, but typically from submittal of the short sale package to bank approval usually takes 45 – 60 days. Some banks will take less time and some banks will take longer.
Most all banks have an Arm’s Length Transaction requirement. The Buyer cannot be related to the Seller, be business associate or a close personal friend. There cannot be any side agreements between the Buyer and Seller regarding money, rental agreements or future options to purchase. Many banks have the parties sign affidavits or certification documents to that affect. Speak with one of the North Carolina short sale lawyers at Wilde Law Firm, PLLC today to confirm your short sale is an Arm’s Length Transaction.
Wilde Law Firm, PLLC and its attorneys exclusively practice North Carolina short sales law. The office is dedicated to successful North Carolina short sales and helping North Carolina real estate agents, buyers and sellers. Put our experience with North Carolina short sales to work for you. “Let us do what we do best…short sales…so you are free to do what you do best…sell real estate.”
The Wilde Law Firm, PLLC is a licensed North Carolina law firm led by recognized short sale expert Steve Wilde. With extensive success in facilitating short sale transactions, our attorneys specialize in working with lenders to obtain an approval for the short sale in order to get the subject property sold.
- Facilitation with the lender on terms of the short sale, including the deficiencies. Our firm negotiates with the lender for favorable terms of the short sale, including those concerning the deficiencies.
- Continuous management of the file/transaction through the lender’s process, with oversight of the Broker Price Opinion or appraisal.
- Regular communication with the lender and all parties involved so your file is not lost at the bottom of a pile.
- Organized timely assistance for the collection of all required documentation.
- Submission of a complete document package that meets the lender’s specification and requirements.
- Coordination with the settlement attorneys and lender through closing.
There is no cost to the real estate agent for Wilde Law Firm, PLLC to facilitate the short sale.
The Wilde Law Firm, PLLC will attempt to have the attorney’s fees paid by the lender and through closing cost credits with the buyer. We are very successful in having the lender pay at least our minimum much of the time. Finally, Wilde Law Firm, PLLC does not receive any fee unless the property closes and we do not collect any up front fees.
The buyer is never responsible for our fee out of pocket. In fact, we often return a fraction of the closing cost credits to the buyer at closing, if the lender approves them in the short sale.
While we cannot guarantee a shorter closing time, we understand what lenders need and can therefore package and deliver the information in a streamlined fashion, facilitating the review process. Our experience and knowledge of the short sale process ensures the fastest review possible. This is to your advantage since lenders generally prefer to work with an experienced specialist.
A seller must cooperate with the lender during foreclosure actions, but we may be able to assist in delaying foreclosure to provide all parties the opportunity to obtain a short sale on the property.
The short sale package will normally include: 1) two years tax returns : federal and state 2) bank statements for the past two months 3) pay stubs for the past two months 4) a financial statement and 5) a hardship letter.
An agent who attempts to negotiate a short sale is assuming a considerable amount of risk and liability. With potentially tens of thousands of dollars in tax consequences or hundreds of thousands of dollars worth of deficiency responsibility for the seller at stake, the agent could become liable for costs related to any items handled incorrectly.
Wilde Law Firm, PLLC does not provide settlement services. This preserves complete flexibility for the client and real estate agent to select a settlement attorney. An experienced settlement attorney should be consulted to complete all closing and recording activities once Wilde Law Firm, PLLC has facilitated the final details of the short sale transaction.
Most settlement attorneys do not have the experience, time or staff to facilitate short sales. If they do agree to facilitate the short sale, it is usually on an hourly fee or with a predetermined fee to the seller. If Wilde Law Firm, PLLC facilitates the short sale, our experienced staff manages the transaction in a friendly, competent and professional manner, with fees typically paid by the lender. There is no up front cost to the seller and no cost if the property does not close.
It is our policy to encourage the seller consult with an attorney with experience in asset protection, taxes and deficiency judgments. This is very important, as most real estate attorneys do not specialize in these areas. This ensures no gaps or issues after the close for a seller with unexpected financial burdens.
For example: I might owe $250,000 but I can’t get an offer for more than $220,000.
The lender has options for handling the balance owed, or the deficiency.
- The lender may agree to terms under which they write off the loan, and the homeowner will not be asked to repay any of the deficiency. However, when the bank declares a loss to the IRS, the IRS will send a 1099 to the homeowner to pay tax on the deficient amount. (The seller may not be required to pay taxes if the property was the homeowner’s primary residence qualifying them for relief under that 2007 Mortgage Forgiveness Debt Relief Act, or if the property is not the primary residence and the homeowner is insolvent at the time of the short sale)
- The bank may attempt to collect all or part of the deficiency from the homeowner in one or more ways.
- Unsecured Note – the lender may require that the homeowner sign a promissory note for all or part of the deficiency under negotiated terms.
- Cash Contribution – the lender may require a cash contribution from the homeowner at closing for part of the deficiency.
- Deficiency Judgment – The lender may preserve the right to pursue a deficiency judgment at a later date. The lender could choose to file suit against the seller for a judgment in their favor of all or part of the deficiency, and could file liens or seek other means to recover all or part of the deficiency.
In the short sale process, the lender will order a BPO (Broker Price Opinion) or an appraisal to determine the present market price of the property for their negotiating purposes. The lender will review the short sale offer in relation to this valuation. The valuation is rarely disclosed.
- The short sale requires the cooperation of all owners named on the deed and is negotiated with all parties named on the Deed of Trust.
- All liens on the property must be disclosed, and released prior to closing.
- All HOA information must be made available so that dues and assessments can be paid at closing. Banks rarely agree to pay past due HA amounts, so it is the responsibility of the home owner to settle the amount at or prior to closing.