The Short Sale Boomerang Bomb
Doreen Roberts
Q. What is worse than waiting for months to close
a short sale and having it fall through?
A. Closing a short sale that comes back like a boomerang two or three years later to explode your world.
Risk management experts are telling REALTORS® that the short sale lender-prepared documents that are required to close a short sale often include a requirement for the seller to agree to be responsible for the deficient balance - even on loans that would normally not be recourse obligations.
How does this affect you as a REALTOR®? If you encourage a seller to sign the Short Sale Lender Approval Agreement to get the transaction closed more quickly, it could be considered “practicing law without a license”- a violation of Article 13 of the NAR Code of Ethics. Beyond the ethical ramifications, if the seller later learns that they signed an agreement which commits them to a debt that they might not have had to pay if they had not closed the short sale and just went into foreclosure, their attorney could come after you for damages.
It’s not a great situation to wait months and then find out the short sale lender is requiring the seller to agree to terms that may be quite disagreeable. The smart agent will refer the seller to a local attorney with a lot of experience in these matters who may be able to negotiate the term off the agreement or perhaps advise the seller not to go through with the short sale.
Gov Hutchinson, C.A.R.’s Assistant General Counsel, advises that some short sale lenders who do not require the deficiency clause in their agreement might still be able to come back against the seller for recourse obligations. A specific waiver of deficiency responsibility would have to be negotiated with the lender.
Risk management experts recommend that a seller should consult with an attorney prior to listing a short sale property to review their loan documents, financial situation and the possibility of a deficiency balance responsibility before deciding whether a short sale or foreclosure would be best.
Be smart. Don’t take risks today for something that could boomerang back tomorrow. Make sure your short sale seller clients are getting expert advice before they sign Short Sale Lender Approval Agreements.
A Division of Richard Realty Groups, Inc 6986 El Camino Real, Ste. H,
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