What happens if you can’t pay your mortgage and you can’t sell your house because you owe more than it’s worth. You can stay in your house until a sheriff posts a move-out order or you can try to escape your debt with a short sale.
Although short sales are on the rise, and there are even federal programs created recently to assist in the process, a homeowner trying to negotiate these matters alone often find themselves in quite a legal maze. What happens in a short sale is that you hire a realtor, put the house on the market, and find a buyer willing to pay less than the mortgage amount. Then you have to try and convince the bank to eat the difference between the sale price and the amount you owe on the loan (or loans if there is a second lien holder), so you can get off the hook for any remaining debt.
This is not pleasant for anyone involved. There are mostly losers and it’s a difficult, time-consuming process with a delicate waiting game where everyone wants a piece of a pie that is just too small to feed everyone.
Different Goals for Different Roles
The homeowner’s goal is to get out without a deficiency (the different between the mortgage amount and the sale price) or the possibility of being sued for one. In a foreclosure the bank is allowed to sue for the deficiency. In a short sale, negotiated properly, the debt could be forgiven. Also, your credit is also going to be impacted more in a foreclosure. A short sale will hurt your credit less, but only if there is no deficiency. Sometimes a job application may even ask if there has been a foreclosure, but they won’t ask if you sold your house in a short sale.The lender’s goal is to limit losses. Short-sale homes generally sell for more than foreclosures, and the bank avoids the legal maintenance costs.
How a Lawyer Can Help
The listing price of a home for a short sale is key. Although you hire a realtor, the attorney can and should advise on how to gradually drop the price. If you initially list the property too high, or too low, that can kill your chances of getting to short sale approval and to a closing. The approval process can last awhile. It will go to a negotiator, who has limited authority to approve an offer. If the offer is below his or her limit to approve, it will be submitted to the investors. The investors actually own the mortgages these days. Mostly the bank is just servicing the loan on the investor’s behalf. Second mortgages are the main reason why a short sale fails. The second lien holders are the ones at risk of losing the most. The negotiators may spend more of their time negotiating with these home equity lenders. Throughout this time the prospective buyer must be kept waiting and hoping that they don’t find a better deal or change their mind.
Every document the bank issues has legal interpretations. The wording often isn’t clear as to whether the homeowner will be subject to a deficiency or not. The bank won’t mention the deficiency, which means the bank maintains the right to collect at anytime. Many people think they are protected, but without the right representation, they are not. Contact one of our experienced Burlington County short sale lawyers to go through this process with you.
How Do the Attorneys Get Paid for Short Sales?
The bank pays a certain amount of legal fees for a short sale; typically that is how the bank pays the attorney. This usually means that the homeowner pays no legal costs to get necessary legal assistance for a short sale.