When a foreclosure process has begun, time is of the essence. It is important for property owners to decide quickly what course of action they will take to make sure their rights and interests are protected and their goals are attained before a foreclosure sale is completed. While there are many directions a property owner may go when faced with a mortgage foreclosure, a short sale in many cases is an individual’s best option, and the option most likely to also be deemed favorable by a future lender.
Eric Habib has the experience and familiarity with short sales necessary to not only get you a short sale approval, but also get you that approval quickly. At our firm we facilitate short sales with lenders and servicers, and we zealously seek short sale approvals. We don’t handle foreclosure defense litigation, we don’t work on loan modifications, and we don’t file bankruptcies. We practice short sale facilitation exclusively at our office, which means your short sale is our priority.
How does hiring an experienced short sale law firm make attaining your short sale easier? While banks are now more willing to accept short sale offers, getting a short sale approved is a process with many steps, requirements and possible pitfalls. Eric Habib is experienced and confident with the short sale process. Our law firm concentrates solely on short sales and we are dedicated to using our experience to help homeowners and real estate agents focus on selling real estate and avoid the possible liabilities associated with the short sale process.
Our law firm does not co-broke with realtors, therefore the real estate agent is able to receive their full 6% commission. We do not charge any processing fees and there are no hidden or upfront fees to the realtor or to the seller. We earn nothing until the property closes at which time we get paid by the short sale bank.
FREQUENTLY ASKED QUESTIONS
The following is not to be construed as legal advice. Consult an attorneytoday to learn more about your rights.
What is a short sale?
A short sale is a sale of real estate in which the sale proceeds “fall short” of the balance owed on the note and mortgage. The note holder or “investor” has been granted a secured interest in the property through the mortgage. The mortgage 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.”
Why would a bank be receptive to a short sale offer?
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.
I am a real estate agent. Why do I need a law firm to handle a short sale?
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.
What is an agent’s role in the short sale process?
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.
Why is it important to have all the documents ready when sending the initial short sale package for review to the lender?
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.
How long does the short sale review process take?
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.
Can a short sale be completed between family members or friends?
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.
What are the key benefits of hiring Eric Habib?
- 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 all settlement attorneys and lenders through closing.
There is no cost to the real estate agent for Eric Habib to facilitate the short sale. The real estate agents get to keep their entire 6% commission.
What is the cost to the home seller?
Nothing. Eric Habib will attempt to have the attorney’s fees paid by the lender. We are very successful in having the lender pay at least our minimum fee much of the time. Finally, Eric Habib does not receive any fee unless the property closes and we do not collect any up front fees.
Will Eric Habib reduce the time it takes to close on a short sale property once it goes under contract?
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.
What documents are typically needed for a complete short sale package?
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.
Should a real estate agent negotiate a short sale?
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.
If I use your short sale services, does this mean that I don’t need a settlement attorney?
Correct. Eric Habib provides settlement services. Eric Habib will complete all closing and recording activities once he has facilitated the final details of the short sale transaction.
I already have a settlement attorney. Can’t they handle the short sale?
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 Eric Habib 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.
What other legal advice might a seller need?
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.
Who actually determines the facilitated price? Do you use a separate BPO, appraiser or both?
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.
If I can’t sell the house for the loan amount what happens with the balance?
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.