Client Q&A: Why Don’t We Have An Attorney?
I also checked out a 2nd opinion in which these realty specialists stated we should have a real estate attorney so we don’t get the shaft. Reading newspapers and online articles, banks are making it harder for us to short sale and/or foreclose. I don’t want to kill our credit. Why don’t we have a real estate attorney?
Attorneys are important when it comes to representing you in legal disputes, or verifying that a legal document is in your best interest. The primary challenge of a short sale is to prove to the lender that the offer we have is the best we can get. Until we have an offer, we cannot do that. Once a lender approves the sale, which can take time, as you know, based on the lender’s experience, organizational level, and work-load, it’s important that the letters of agreement conform to what’s in your best interest. You will be signing an agreement with the lender once they approve the sale, and that agreement must do the following:
- Release the lien so you can sell the home.
- Release you from all future liability on the note.
You basically want the lender to allow the sale and declare a zero balance on your account in writing. That is what an acceptable Letter of Agreement contains.
Some lenders are crafty with their language, but for the most part, since they know that Arizona is a non-deficiency judgment state, they provide letters with both of these stipulations already in place, which is exactly what you want.
However, just to be cautious, and to protect your interests as a seller, in the purchase agreement, as a part of the short sale addendum, I will always write in a 5-day period for the seller to cancel the contract if the letter of agreement from the lender does not meet these two requirements. Once the letter of agreement is acceptable to the seller, it is delivered to the buyer, and the standard inspection period begins and everything moves towards a successful close of escrow and a successful short sale.
As for your credit, there is no way to avoid having a scar on it. When you complete a short sale, the lender has to write off a large sum of money and then they report it to the credit bureaus as something on the lines of “Settled for less than the amount owed.”
It will affect your credit, and it will take about 2-3 years to recover. This is an estimate, as the entire industry can’t seem to agree upon the effects of these things on your credit as it is. If you were to walk away from the home, and just foreclose, it will go on your record as a foreclosure, which is MUCH worse. In fact, it could affect many aspects of your life, such as employment, insurance rates, security clearance, etc. You definitely don’t want that.
The deficiency that the lender writes off could potentially become taxable income. In order for someone to write off a bad debt over a certain dollar amount, they have to report that the recipient of the “forgiveness” received the deficiency amount as a “gift.” In other words, if the home is worth $100K and you owe 200K, and you sell it for 100K, you’ll be forgiven of 100K, which will most likely be reported as income to you.
Whether or not you will be liable for income tax ON that amount is something you’ll need to discuss with your CPA.