How Attorneys Help With Short Sale

Realtors are the most commonly used persons in the short sale process…and they should be! They are affordable for most homeowners because they require no up-front cost to hire, and they can provide a homeowner with a wealth of knowledge on how to properly market and short sale real estate. However, realtors have no legal training, licensing or ability to address issues that often arise during the short sale process. Short sales are often directly linked to complicated legal issues such as tax consequences, mortgage fraud accusations, deficiency negotiations, contract disputes, potential bankruptcy protection, etc.

Having an attorney to advise you on the short sale process affords the client immediate access to a licensed attorney with a full range of legal expertise. Confusion and misunderstanding can be avoided, as well as costly legal complications, if an experienced real estate attorney is involved in the short sale process from the beginning. An attorney has the knowledge to explain the inherent risk the client faces from a short sale. While your broker and realtor may be extremely knowledgeable, they are not permitted to give legal advice.

What Our Standard Short Sale Consultation Covers

When you meet with one of our attorneys regarding your short sale, our goal is to give you a comprehensive explanation of the short sale process and a clear picture of your rights and liabilities. Short sale consultations usually last just one hour and are charged at the attorney’s standard hourly rate (for our attorneys usually between $200-$300 an hour depending on the attorney you meet with). Common consultations go over the following information:

• An in depth review of the short sale process

We will review the short sale process, both broadly and specifically, as it relates to your situation.

• Asset protection analysis and counsel

If the bank reserves the right to hold you liable for a deficiency, your assets (i.e., other properties, bank accounts, retirement accounts, etc.) may not be safe. It is not uncommon for lenders to go after money that sellers have in bank accounts before they approve a short sale request. They’ll sometimes seek that the real estate practitioner to get a signed promissory note from the seller for funds from their bank account as a condition of the sale. Be aware of the true meaning and implications of what you are signing before doing so.

• Debt analysis, advice and counsel

Another advantage of working with our firm is our experience with bankruptcy and debt settlement. A debt analysis is always a part of our service because people going through a short sale often have other economic challenges that might need resolution. It may be in the homeowner’s best interest to do a bankruptcy or foreclosure instead of risking the chance of having to pay a deficiency to the lender, and you should know all your options before finalizing your short sale.

• Review of short sale contracts and documentation

We will go over all of the short sale documentation that you have signed to make sure that you have a good understanding of your rights and obligations under the short sale agreement.

• Answer your questions and address your concerns

This is your appointment. You will have the opportunity to bring up and of your questions or concerns and get an attorney’s feedback on your situation so you can be confident that you have made the best possible decision for you and your family.

Why Do I Need An Attorney?

Our attorneys are available on an hourly basis to provide counsel on the short sale process and legal consequences. There are several major legal pitfalls that can occur during a short sale that require an attorney:

1) Tax Liability

Both the State of California and the federal government have passed excellent laws attempting to limit the tax burden on homeowners going through short sale. Unfortunately, those tax protections do not extend to everyone. The tax rules vary depending on your tax basis, the type of property you own, whether it is owner-occupied or not, whether your situation involves purchase money, and the type of loan you have against the property. Depending on your tax liability, knowing the tax consequences of your short sale could have a large financial impact.

Our attorneys work closely with your real estate agent and tax professional to make sure that any tax consequences are transparent before you close escrow on your short sale. Our standard procedure is to set up a consultation between the homeowner, their agent, their CPA and one of our attorneys so you can have comprehensive legal advice. Most of the time we can evaluate your tax liability and provide you with advice in a one hour consultation, so getting feedback from an attorney on your short sale does not have to be expensive.

2) Second Mortgage Forgiveness

One of the major complexities with short sales lies in the second mortgage. Homeowners conducting a short sale on their primary residence generally have less problems, but rental property owners can face large deficiency debt if not alert to the potential for liability. In many cases second mortgages are recourse, so sellers can be caught by surprise when a collection agency contacts them a year later seeking payment of the debt. An attorney can review your Deed of Trust to determine the recourse rights of a second mortgage before your short sale takes place.