Why On Earth Would I Attempt A Short Sale?

by admin on March 17, 2010

Recently a family purchased a short sale home in San Bernadino, CA and to their surprise when they walked in, the toilets and sinks had been sabotaged.  Over the weekend an unknown trespasser filled the toilets and sinks with concrete and it had “set”. Much to their surprise, on top of the stress of moving, they had a huge problem to deal with and they were stuck with the house and nowhere to relieve themselves.

If you are in the real estate business, I am certain that you may have a story similar to this to share.  Please do so in the comment section.

If I Short Sale, You Can Come After Me… If I Foreclose You Can’t!

What is wrong with this picture?  I have been asked this question a lot lately.  In a non-recourse state, if I go through with a short sale, why does the lender have a right to pursue me for a deficiency judgment?  That is a great question and I certainly thought to myself well, it’s not allowable by law, so the lender won’t be able to come after someone who did a short sale.  I was wrong.  Read below.

Sabrina, A California lawyer in our YouWalkAway.com attorney network says the law prohibits pursuing a deficiency only in a foreclosure, and does not apply to a short sale.   It’s because a short sale is a voluntary action the homeowner chooses.  A foreclosure is where the mortgage lender sells the property.

The law reads:

No judgment shall be rendered for any deficiency upon a note secured by a deed of trust or mortgage upon real property or an estate for years therein hereafter executed in any case in which the real property or estate for years therein has been sold by the mortgagee or trustee under power of sale contained in the mortgage or deed of trust.

Borrowers have protection under the California Civil Code §580d, which bars deficiency judgments from the foreclosing lender (given the foreclosure was non-judicial). In California, a mortgage lender can only take one action against you: A non judicial foreclosure, or a judicial foreclosure. The result of non-judicial foreclosure; a lender can only sell the property and pay the loan. If the sale does not pay the mortgage, the foreclosing lender (the primary mortgage) cannot get the unpaid balance from you. However, the lender can get the balance from you in a judicial foreclosure.

Also in most short sale approval letters, there is a section in the approval that says this:

BAC Home Loans Servicing, LP and/or its investors may pursue a deficiency judgment for the difference in the payment received and the total balance due, unless agreed otherwise or prohibited by law…

Now certainly, if you have a really good short sale negotiator, you may be able to get this language taken out of the approval, but I wouldn’t be surprised if the lender said no.

With that being said, it’s also part of the process of the short sale for a lender to look at your assets and bank accounts.  If you don’t have much in your accounts, chances are that they won’t come after you anyway.

I find it interesting that homeowners trying to do the right thing by doing a short sale would end up exposed to further problems whereas a homeowner who just says, “I’m not even going to try to sell my home and work with the bank” gets protection.  It doesn’t seem right.  However, it’s the law.

There was an article on CNNMoney.com a while back that triggered panic in many of our customers.  This article was titled “You lost your house – but you still have to pay”

It triggered hundreds of calls to our office and people were scared saying, “Is this true? Can the lender really come after me?”  In this article, the important thing to point out is that the person getting a deficiency judgment was someone who did a short sale.

It can even happen to people who got their bank to approve them selling their home for less than it is worth.

Vanessa Corey, for example, short sold her Fredericksburg, Va., home in April 2008. She and her husband built the house in 2004, but setbacks, both personal (divorce) and professional (housing bust), made it impossible for the real estate agent to keep her home. So she negotiated the short sale and thought that was the end of it.

“My understanding was that the deficiency was negotiated away,” she said. “Then, last November, I got a letter from a lawyer telling me I owed my lender $65,000. I had to declare bankruptcy. There was no way I could pay it.”

A Short Sale May Be Worse In Recourse States As Well

Foreclosure tustee sales and short sales each have different lengths of time for which a lender must file suit or lose its right under a statute of limitations law.

NRS 40.455 governs Nevada homes sold at a foreclosure trustee sale:

Deficiency judgment: Award to judgment creditor or beneficiary of deed of trust.

1. Upon application of the judgment creditor or the beneficiary of the deed of trust within 6 months after the date of the foreclosure sale or the trustee’s sale held pursuant to NRS 107.080, respectively, and after the required hearing, the court shall award a deficiency judgment to the judgment creditor or the beneficiary of the deed of trust if it appears from the sheriff’s return or the recital of consideration in the trustee’s deed that there is a deficiency of the proceeds of the sale and a balance remaining due to the judgment creditor or the beneficiary of the deed of trust, respectively.

As such, the lender has six (6) MONTHS after the trustee sale date to file a lawsuit against the homeowner for the deficiency judgment. If six (6) months passes and no lawsuit is filed, the lender loses its right forever and always.

However, if the house is sold through a short sale, the lender has six (6) YEARS to file suit. NRS 1190 governs short sales:

NRS 11.190 Periods of limitation. Except as otherwise provided in NRS 125B.050 and 217.007, actions other than those for the recovery of real property, unless further limited by specific statute, may only be commenced as follows:


Banks Have NO Incentive To Do A Short Sale

Banks right now are trying to unload their REO inventory.  It is in the lenders best financial interest to not approve short sales because these 2 reasons.

1.  If the lenders don’t approve short sales, buyers will have to buy REO’s, thus reducing their inventory.

2.  If the lenders don’t approve short sales, they don’t have to take the losses on their balance sheet for much longer since they are delaying the foreclosure process and postponing the auction date.

I know what you are thinking… why wouldn’t they approve short sales, so they don’t have to get more inventory?  The answer is that most people trying to do a short sale are living in their home and paying their insurance, keeping the lawn green and keeping the home from being vandalized or trashed.  They figure they can keep their expenses down if that homeowner stays in that home all the way till the foreclosure happens.   We hear this all the time.  Many of our clients trying to do a short sale have their home auctioned off during the short sale process and they don’t know why.   They are doing everything they can to work with the bank and their home gets sold, when a vacant home one their street in foreclosure has an auction date that keeps getting postponed.

In any case, it may be in your best financial interest to not attempt a short sale, even if you think it’s the best thing to do, you could be shooting yourself in the foot.  Consult an attorney before doing either, YouWalkAway.com can arrange a consult for you.  The last thing you want is to get a judgment after losing your house and think to yourself, “Why on earth did I do a short sale?”

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The Worlds Biggest Ponzi Scheme Part 2

by admin on March 17, 2010

The Best Way to Rob a Bank Is to Own One

In having a conversation with a friend last week about my The Largest Ponzi Scheme In History Post, and during our conversation the phrase “Madoff was a Piker” came up once or twice. So it was really funny when I came across this PBS interview with Bill Black, author of a great book, The Best Way To Rob A Bank Is To Own One on the Bill Moyers show. In the interview he talks about the current financial mess we’re in and the role that banks and the executive management of the banks are profiting from it at the taxpayer’s expense. In the interview he uttered the exact same phrase when talking about government and big business as the perpetrators of the largest Ponzi scheme in history, namely…

Read The Full Transcript

Watch the interview:

While the book was based on Black’s experience with the banking industry during the Savings & Loan crisis, its principals hold very true during the current situation we find ourselves in as well. Black has an uncanny way of telling it like it is, exposing the banking industry and government from the inside out. According to Black…

“We don’t want to change the bankers, because if we do, if we put honest people in, who didn’t cause the problem, their first job would be to find the scope of the problem. And that would destroy the cover up.”

The interview goes on to talk about the fraudulent origin of the sub-prime mortgage meltdown, government de-regulation, and corruption at the top of government and some of the largest banks in the world, many of whom are now making a killing investing taxpayer bailout money, but not lending to individuals and small businesses as promised as part of their getting bailed out.

Equal parts eye opening and downright infuriating, Bill Black makes about the strongest case for the government and banking industry being perpetrators of the worlds largest Ponzi scheme in history. Everyone can benefit from the information this guy has in his head.

This interview is really worth checking out, as is the book. I really enjoyed it & I hope you do to.  Please leave a comment and let us know your thoughts.

Jon Maddux, CEO

www.YouWalkAway.com

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The Biggest Ponzi Scheme In History?

March 16, 2010

And that government of the Ponzi, by the Ponzi, for the Ponzi, shall not perish from the earth…
Ponzi Scheme Definition, from Wikipedia:
A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned. The Ponzi scheme [...]

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DUMP The HAMP – Confessions Of A Loss Mitigator

March 14, 2010

Loss Mitigation Isn’t Working
One of the things that I love about my job is when I get to talk to people that are on the “inside”.  What I mean by the “inside” is someone that is working for the banks.  A disgruntled bank employee. A pissed off loss mitigator.  Someone who decides whether or not [...]

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How Strategic Default Could Save Our Economy

March 12, 2010

More Debt Is Not The Answer
“I was on my way to recovery, then you enabled me.” – Drug Addict
Bailing out banks is like a mother giving her 28-year-old son who is living at home money for heroin, driving him downtown to buy the drugs and then back home so he can use ’safely’.
What does [...]

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Bankruptcy Is A Nuclear Strike On A Credit Score… Should You Push The Red Button?

March 11, 2010

Walkaway Consequences
Please consider: Snow Job: Strategic Defaults in an Era of Negative Equity

As more than a million people filing bankruptcy every year learn, life continues even after their credit scores are trashed. They can still buy cars on credit. They still have credit cards (secured) and debit cards. They can still rent apartments and houses.
Bankruptcy [...]

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Federal Short Sale Program… The Last Resort?

March 9, 2010

5 Reasons Why The Program Is Doomed To Fail:

Like the federal loan modification program that was put into effect just over a year ago, the federally subsidized short sale program, set to take effect April 5th, is now being touted as the next great hope for homeowners who either can’t afford to, or are [...]

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Where is the Tipping Point? Weighing The Option Of Strategic Default.

March 9, 2010

The Tipping Point
In a phone interview yesterday with a writer from the New York Daily News, I was asked…”Jon, where exactly is the tipping point? When do people realize it may be better to just walk away?”  This is a difficult question, I said, because it’s not so clear cut.  It depends on many factors. [...]

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How Will A Foreclosure Affect My Security Clearance? Email From A YouWalkAway Client

March 8, 2010

How Will A Foreclosure Affect My Employment?
We get this question a lot.  In fact, we recently started a survey of all our customers as to how default is affecting their credit and employment.  One recent email stands out. This email was addressed to us and his short sale real estate agent.  Name was changed for [...]

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How Do Employers Look At My Credit? Can Foreclosure Affect My Employment?

March 4, 2010

Today on CNN they talked about these VERY interesting statistics.
Here are the highlights below:    (full transcript)
VELSHI: And one that we’ve had in the last couple ideas has been this — this idea that there are states or efforts to try and curtail the use of your credit report, your credit history by employers to [...]

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