Your Attorney’s Role in the Short Sale Process

A short sale is a good way to avoid foreclosure if you have the time and patience. They take about 3-6 months and sometimes as long as a year to get approved. Since the process is time consuming and complicated, many people use an attorney to negotiate them with their lender.

“The best way to protect yourself is to be educated on all of the possibilities. Make sure to keep an open line of communication with your lender on the subject. If you have hired an attorney to represent you against the bank, be sure to express your concerns about any future liability,” says, Joel Jacobi, Managing Attorney at American Residential Law Group.

If you have come to the realization that you can no longer afford your mortgage payments, you should contact your lender to find out if your property qualifies for a short sale. If it does, then the next step is to speak to a real estate foreclosure defense attorney about helping you with the negotiations. The real estate attorney will also advise you of other options to avoid foreclosure as well.

Hiring an Attorney

Interview a couple attorneys before deciding. Here are a few questions you should ask the attorney to help you make a decision:

1.  How many short sale transactions has the attorney recently negotiated? Meaning how many have closed.
2.  What was the average length of time from beginning to closing?
3.  What is the attorney’s fee for representing you?
4.  Can you make payment arrangements, or do you need to pay a retainer upfront?

How the Short Sale Negotiating Process Works?

Your attorney will prepare a short sale package and send it to your lender to get the process started. The short sale package contains the following:

1. Authorization letter signed by you allowing the attorney and any other third parties such as your Realtor to negotiate with your lender.
2. Hardship letter signed by you explaining why you can no longer make your mortgage payment.
3. Recent bank statement.
4. Last two year’s tax returns.
5. Your last two paycheck stubs.
6. W-2 forms or 1099’s.
7. Copy of your brokerage listing agreement if you are using a Realtor to sell your home. The lender must approve the brokerage agreement because the lender pays the broker’s commissions.

Once you have a signed purchase and sale contract between you and the buyer, the attorney will forward that to the lender right away. The attorney will follow up with the lender until a negotiator is assigned. It could take at least three months so be patient.

After the negotiator is assigned, a response from the lender should take about 2-4 weeks depending on how many other files the negotiator is working on at the same time. The main problem with short sales has been the long time it takes the lender to approve or disapprove them. The reason for this is the lenders are short staffed and are overwhelmed with short sales, mortgage modifications and foreclosures.
What to Be Aware of?

Since each seller’s financial situation is different, sometimes the lender will require the seller to sign a note for additional funds or to bring additional funds to closing to pay for back homeowner dues or taxes. This is where the short sale transaction generally falls apart because many sellers are unwilling to do. Your attorney may be able to negotiate a smaller amount or get the lender to delete the requirement. But if the lender insists, then you will have to comply if you want to close the transaction. If you don’t, the alternative may be worse for you if the lender forecloses and your credit gets ruined.

Keep in mind that in most short sale transactions, the lender does pay all the seller’s closing costs because if the seller had assets, they would be able to pay the loan off in the first place.   Once you get an approval, then your attorney or your Realtor will need to notify the buyer in writing right away of the approval and to find out if they still are interested in closing.

Usually the buyer’s contingencies such as inspections and any loan contingency start once you give the buyer written notification that the sale has been approved by your lender. Generally, lenders want the transaction to close within 30 days from their approval so it is important that your buyer be prepared to close. A cash buyer is the best type of buyer for your short sale transaction because they can close quickly. If your buyer is getting a mortgage, make sure they are already pre-approved at the time you accept their offer, otherwise they won’t be able to close in time because it takes about 45-60 days in today’s market to close a loan.

The other thing to keep in mind is if you are negotiating the transaction without an attorney is that you need to get the lender to agree in writing that the short sale proceeds are considered a final payoff of your debt. Otherwise, the lender may be able to come after you for a deficiency judgment for the difference between the sale proceeds and your loan balance. Not all states allow deficiency judgments. Your attorney will advise you about the laws of your state. That is why smart sellers use an attorney who is experienced in negotiating short sale matters and who can protect them legally.

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