Occasionally our short sale attorneys are contacted by individuals that are a month or less away from a foreclosure date (trustee’s sale in Arizona). These homeowners have often been in negotiations with their lenders for a loan modification or simply have not known where to turn when they began to miss payments on their mortgages. Often these homeowners have been scared to act because they do not have the right information and worry that they will make the wrong decision. The fear leads to inaction, shame and often the foreclosure of their homes without any choice ever being made by the homeowner.
Our major goal when meeting with a distressed homeowner is to empower them to make the best decision for their particular circumstances. The best way to begin that empowerment is to arm distressed homeowners with the most accurate information possible. So, we have taken the time to answer some of the most frequent questions we hear when meeting with homeowners that are facing a tough choice concerning their home.
What Is A Short Sale?
A “short sale” (or shortsale) is the sale of a piece of real estate for less than is owed to the lender. Homeowners however, are not free to simply sell their home for less than is owed without first receiving approval from the investor that owns the promissory note on their home. In Arizona, when a person buys a home they sign a promissory note. That promissory note is a promise to pay the lender that financed the home a certain amount of money over a certain amount of time. The promissory note is secured by a deed of trust. The secured promissory note is then sold in the securities market to an investor. The investor purchases the note with hopes that they will receive a certain return every month when you make your payment. If you fail to make your payments, the investor is allowed to take back the property after a certain time set by state laws. The house cannot be sold until the note is paid in full and the deed of trust is released. Before the real estate market collapsed, this was not a problem for most people because they owed less on their homes than it was worth. That is not the case any longer. Many homeowners that bought homes between 2003 and 2010 owe more on their homes than they are worth. As a result, people have become financial prisoners in their own homes.
In a short sale we negotiate with the investor that purchased the note to allow the sale of the home for less than remaining balance on the loan. This is a painstaking process that requires knowledge of the Arizona short sale laws and familiarity with internal lender policies and guidelines. Every case is different and must be treated as such. Our experience and contacts are invaluable in successfully negotiating the short sale of each home. If not done correctly, you could end up a client of the Wells Law Group for defense in a law suit for the remaining balance of the loan in the future.
Can I Get Sued After a Short Sale in Arizona?
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Why Would A Bank Agree To Accept Less Than Is Owed On My Loan?
Many times our clients are puzzled as to why an investor or bank would agree to allow a homeowner to sell their home for less than is owed on their loan. The simple answer is that a short sale costs an investor less than a foreclosure. Investors and banks are most often financial entities that must make the smartest financial decision based on the best information they have. These entities are not emotionally tied to the home or the specific note they own. When faced with the decision to allow a short sale or foreclose on the home, the investor or bank will choose the option that allows them to recover the most money. Generally, a foreclosure costs an investor about 10%-20% more than a short sale. That difference provides a large incentive for an investor to negotiate the short sale of a home if possible.
Is It Possible To Short Sale My Home If I Have A Second Loan?
Yes. The Wells Law Group is happy to handle both simple (1 lien) and complex short sale negotiations (2 or more liens). In our experience we have successfully negotiated short sales when there were as many as three liens on a property.
How Long Does A Short Sale Take?
Every short sale is different. There are so many factors that determine the time from beginning a short sale to the close of escrow. It can be as little as four or five weeks or as long as a year. Generally, at the Wells Law Group, we tell our clients to expect their short sale to take approximately six months from listing their home to the close of escrow. After reviewing your file, we will be able to give a much better answer.
What Are The Tax Implications Of A Short Sale?
It depends. Every short sale is different. Generally, when you owe a debt to another person or entity and the debt is forgiven, the canceled debt may be taxable. In the past, this general rule has applied to debt forgiveness related to a foreclosure or short sale. In 2007, Congress passed the Mortgage Debt Forgiveness Act (“MDFA”). Under the MDFA, a homeowner may exclude up to $2 million of debt forgiveness ($1 million if married filing separately) from the discharge of debt on their principal residence. The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition. The MDFA applies to refinance loans if the loans were used to pay off previous loans that would have qualified. The MDFA does not apply to HELOCs. Finally, the MDFA was passed with a sunset provision that automatically cancels the Act on January 1, 2013. In order to qualify, a homeowner must close the sale of their home before that date or they will be taxed on the forgiven debt. For more information on the MDFA visit the IRS website.
Is It Possible To Negotiate The Short Sale Of My Home By Myself?
Absolutely. It is also possible to represent yourself in court, write your own will, file for bankruptcy, and draft a complicated business contract. Short selling a home requires a great deal of persistence and, more importantly, knowledge of both the legal rights a homeowner has under Arizona law and the contract they entered with the lender when they purchased the loan. When negotiating a short sale the investor will seek to dictate all of the terms. Investors will often demand that a seller contribute money to the unpaid balance at close of escrow or sign a new promissory note in order to approve the sell of the home. Without the right legal knowledge and the application of negotiation skills, a distressed homeowner could end up in a worse position then they were in when they began the short sale negotiation.
A short sale attorney negotiating on your behalf will provide you with peace of mind that your best interests are being protected. You will be provided with 24 hour access to the most up to date information on your file from the time negotiations begin with your lender. At the Wells Law Group, we try to have complete transparency throughout the entire process to allow homeowners to know exactly where the negotiations stand at all times. This process provides our clients with all the benefits of the firsthand knowledge of a self negotiation combined with the best possible legal representation.
If you still prefer to negotiate on your own behalf we highly recommend that you speak with a short sale lawyer at the beginning of your negotiations with the lender and then again before closing the short sale to ensure that you have appropriately protected all of your legal interests.
Can A Real Estate Agent Negotiate My Short Sale?
The answer to this question is much the same as the one above with one major distinction. If your real estate agent does not advise you to seek legal advice concerning the short sale of your home, the agent has probably committed malpractice. A real estate agent is not authorized nor competent to advise homeowners on the legal ramifications of a short sale. While the agent likely seeks the best interest of their client, often they do not know where they may have given a client bad advice. In fact, one of the steps recommended by the Arizona Association of Realtors Short Sale Advisory is to seek legal advice before beginning a short sale. In addition, the form language in every short sale contract used by Arizona short sale real estate agents begins with the following language:
“Seller acknowledges that Broker [represented by real estate agent] is not qualified to provide financial, legal, or tax advice regarding a short sale transaction.”
The best step is to seek the advice of an experienced Arizona short sale lawyer before beginning the short sale process.
What Are The Effects Of A Short Sale On My Credit And How Do They Compare To A Foreclosure?
It is generally recognized that a short sale has less of a negative impact on an individual’s credit than foreclosure over the long term. However, in the short term, both a short sale and a foreclosure have about the same negative impact on your credit. A credit score will drop about 100-200 points. A person’s credit score is simply a numeric analysis of someone’s repayment of credit that has been extended. The actual impact a short sale has on credit varies based on the individual. There are many factors involved, including the time a short sale takes, the amount of missed payments, and how the settlement is ultimately reported to the credit agency.
What Is A Deficiency Action?
A deficiency action is a law suit by a lender or investor for the remaining balance on a loan. In the real estate context, a deficiency action usually occurs when a lender has foreclosed or allowed a short sale of a property and has not waived its right to collect the remaining balance. That remaining balance or short fall is called a deficiency. In order for a lender or investor to collect the remaining balance they must file a civil action in court and win a deficiency judgment.
Will I Be Liable For The Remaining Balance On My Loan?
This depends on the characterization of the loan and the property involved.
Arizona is one of 7 states that have special “anti-deficiency” statutes (A.R.S. § 33-814 (G) & A.R.S. § 33-729 (A)) that prevent a lender who forecloses then suing to collect any deficiency under two special conditions in two different cases. However, the language in statutes does not extend the protection to short sales. While the short sale attorneys at the Wells Law Group believe that the protection will extend to short sales based on previous cases interpreting the statutes, there is no guarantee of deficiency protection if a short sale is not negotiated correctly.
Should I Short Sale My Home?
This question can only be answered on an individual basis after careful consideration of all factors that are involved. A homeowner can only make that decision if they have the best information available to them and understand the potential advantages and disadvantages. In our short sale consultations we advise homeowners and help them make the best decision for their specific circumstances.
If I Short Sale My Home, How Long Until I Can Buy A New Home?
As a general rule it is between 2-3 years of the short sale completion. Foreclosures require 5-7 years from the time of foreclosure. It varies based on individual circumstances. For general lending guidelines, you can visit Fannie Mae or Freddie Mac to see the timeliness for foreclosures and short sales.
Can I Make Money On My Short Sale?
Generally no, in most cases lenders require homeowners seeking a short sale to sign an affidavit promising not to profit from the short sale of their home. There are some exceptions to this general rule. There are various lender and government programs that allow homeowners to receive specified amounts of money at the close of escrow. These programs can be discussed on an individual basis with homeowners.
Do I Need To File For Bankruptcy If I Short Sale My Home?
No. While there are circumstances where it may be a homeowner’s best option to file for bankruptcy, the short sale of a home does not necessitate a corresponding bankruptcy. A full review of each client’s financial situation is necessary before our attorneys would advise a client to file for bankruptcy. There is never a one size fits all when considering bankruptcy every person is different.
How Much Will It Cost For The Wells Law Group To Represent Me In The Short Sale Of My Home?
The Arizona short sale attorneys at the Wells Law Group are dedicated to keeping prices affordable for distressed homeowners. Each of the attorneys at the Wells Law Group is also a licensed Realtor® with the State of Arizona. This allows for lower prices for any legal negotiations. While each case is different, the short sale lawyers are willing to work with any budget to help successfully close the short sale of your home while ensuring that your best interests are protected.
What Is A Deed-In-Lieu Of Foreclosure?
A deed-in-lieu (“DIL”) of foreclosure is a debt settlement agreement between a homeowner and a bank to give the bank the property without requiring a judicial foreclosure or a trustee’s sale. The homeowner negotiates with the bank to accept the property without the bank being required to follow any of the laws that protect homeowners by providing notice and allowing time for redemption or reinstatement of the loan. Banks favor DILs over foreclosure simply because they are not required to expend the resources to foreclose the property. However, lenders usually prefer distressed homeowners to list their properties for sale with a Realtor® before they will accept a DIL.
Filed Under: Short Sale FAQ