Short Sales

Irvine Short Sale Attorney/Realtor

Experienced Short Sale Support in Los Angeles, Orange, and San Diego Counties

If you can no longer afford your mortgage payments and have exhausted all options to keep your home, you will want to take steps to avoid the foreclosure process and resulting eviction action, which can severely damage your credit and ability to secure a new place to live and future loans. Foreclosure can also result in serious deficiency and collection actions from junior lien holders or HOAs.

A short sale is a popular and effective foreclosure alternative that allows you to sell your home and negotiate a release from any liabilities associated with your home. Short sales can be extremely complex and will generally require professional legal assistance.

Our Irvine short sale attorney/realtor at Lawyers Realty Group can guide and represent you through each phase of the short sale process. Our team has over 50 years of experience and has handled thousands of short sales. We can help you efficiently exit your mortgage and ensure that you are released from all liabilities once the sale has closed.

What Exactly Is a Short Sale?

A short sale occurs when your lender(s) agrees to the sale of your home for an amount less than the outstanding mortgage balance (the sale is “short” of the mortgage payoff). Your lender’s approval is required because it has a lien on your property that must be released to allow for the transfer to the buyer.

In a “regular” sale, the mortgage would be paid in full and the lien would be released, but in a short sale, there isn’t enough money to pay off the mortgage. Therefore, without approval from the lender to release the lien “short” of the full payoff, the sale wouldn’t be possible. This process is a legal negotiation with the settlement of legal claims and requires the review and analysis of a real estate attorney.

Drafting a Short Sale Approval Letter

Your lender is under no obligation to agree to or even consider a short sale. Therefore, you must request a short sale and negotiate the terms with your lender and all other liens or encumbrances that affect the home (i.e. HOA liens, child support, judgment liens).

If the lender does approve a short sale, they will send a short sale approval letter. This document will detail a settlement agreement, stating the proceeds of the sale and any additional terms that the seller must meet. If these terms are met, the lender can release their legal claims on the property.

There are serious legal and tax consequences to a short sale. Therefor, you should retain an Attorney/Realtor® to complete your short sale. You want to be certain that the settlement agreement offered through the short sale is reviewed by an attorney and that you are free from all liability after the sale is completed.

What Are the Qualifications for Short Sale?

To qualify for a short sale, you must owe more on your mortgage than the property is worth and have a documented hardship which has made the mortgage unaffordable (or has caused your inability to pay). Some examples of acceptable hardships for a short sale include a decrease in pay, job loss, medical problems, death, divorce, significant interest rate increase, or other similar change in circumstances that makes it extremely difficult to pay your mortgage.

Short Sale Benefits to the Borrower

A short sale can provide you with a number of benefits:

  • You will remain in the property during the negotiation and short sale process (which can be as long as 4 – 6 months, or more).
  • You will have time to save money and make other living arrangements.
  • You will avoid foreclosure and eviction.
  • You will be able to negotiate and remove deficiency issues (more on this below).
  • You will limit the damage to your credit (as compared to a foreclosure).
  • It won’t cost you anything (and with Lawyers Realty Group, you will have free legal advice and representation during the process).
  • You could be eligible for significant cash incentives from the bank (ranging from $3,000 up to $30,000).
  • What Are the Short Sale Benefits to the Borrower?

    A short sale can provide you with a number of benefits: You will remain in the property during the negotiation and short sale process (which can be as long as 4 – 6 months, or more). You will have time to save money and make other living arrangements. You will avoid foreclosure and eviction. You will be able to negotiate and remove deficiency issues (more on this below). You will limit the damage to your credit (as compared to a foreclosure). It won’t cost you anything (and with Lawyers Realty Group, you will have free legal advice and representation during the process). You could be eligible for significant cash incentives from the bank (ranging from $3,000 up to $30,000).

  • What Are the Short Sale Benefits to the Lender?

    The foreclosure process is costly and time consuming for the lender. A short sale allows the lender to avoid those costs and wasted time, and can also limit certain legal risks to the lender like a borrower filing bankruptcy or renting out the home. A short sale lets the lender avoid becoming the owner of the property post-foreclosure which would require them to maintain and insure the home. The lender would prefer a quick sale while you are still the owner rather than taking the property back as an REO and having to sell in a difficult market.

  • Is a Short Sale Right for All Borrowers?

    There are a number of situations where the legal consequences of a short sale can put the borrower in a much more precarious position than following another option. Most of these issues can be avoided by properly negotiating with the lender, but in certain limited situations, a borrower is better served by allowing a foreclosure to continue. Each situation is distinct and only a real estate attorney can make the legal determination whether a foreclosure provides more protection for the borrower. You must seek the advice of a real estate attorney and CPA to determine if a short sale would negatively affect your situation. Lawyers Realty Group can help you make this determination and evaluate all your options at no cost to you.

  • What Are the Tax Consequences of a Short Sale?

    Both a short sale and a foreclosure can result in taxation, either in the form of capital gains or as cancellation of debt income. A taxable capital gain can occur where the amount of the short sale (or the fair market value in a foreclosure) exceeds your basis in the property (the purchase price plus any improvements in your home). Additionally, in any situation where the lender is not able to collect the outstanding balance of the mortgage (whether voluntarily or by law), you could have taxable cancellation of debt income. When a lender cancels any portion of recourse debt, they will issue a 1099-C. The IRS views canceled recourse debt to be INCOME to you (you received money at some point and no longer have the obligation to pay it back). This is known as “Phantom Income” because you don’t actually receive any money at the time you suffer the obligation to pay taxes, but you must report it as ordinary income on your tax return. There are exemptions to taxation resulting from a capital gain or cancellation of debt income. Some examples include the principal residence exemption to capital gains, the Mortgage Forgiveness Debt Relief Act of 2007 and IRC 108 insolvency. Real estate agents almost universally misstate the Mortgage Forgiveness Debt Relief Act and, in fact, they have no legal authority to even discuss that law with you. Contact us for more information on the exemptions to taxable income from a short sale.

  • What Are the Credit Consequences of a Short Sale?

    While it is impossible to determine the exact impact of either a foreclosure or short sale on your credit score, it is clear that both cause a substantial negative result. Additionally, late payments in either situation will have a severe effect on your credit score (no matter the final outcome). However, there are a number of reasons why a short sale is preferable to foreclosure. First, a short sale indicates that you cooperated with your lender in the process and should be looked upon more favorably by future creditors. Credit applications will inquire about whether you have been through a foreclosure and you will need to disclose such information no matter how far in the past the foreclosure occurred (and regardless of whether the foreclosure has dropped off your credit report). Typically, credit applications do not specifically ask about short sales. With regard to a future home loan, many lenders have indicated that you would be eligible for a new loan in as little as 2 years after a short sale, whereas you would be barred from a new loan for 5 – 7 years following a foreclosure.

Breach of Contract/Legal Negotiations

It is very important to understand that once you have defaulted on your loan, you are in breach of contract. The short sale process involves legal negotiations and settlement of claims in resolution of your breach and a limitation on your future liability. In fact, you are assisting in the mitigation of damages to the lender by cooperating in the disposition of the home in a short sale. Because of the legal nature of this settlement negotiation, we believe you are ill-served if you forego legal representation in the process. We also understand that most people facing financial difficulty simply don’t have the money to retain an attorney. That’s why we formed Lawyers Realty Group. You get an Attorney/Realtor® without charge. Your lender has a lawyer, and you should too!

Deficiencies and Deficiency Judgments

With a successful short sale, you will be released from your obligations under the mortgage. If the short sale doesn’t close, you could be exposed to foreclosure, eviction and future legal action for the collection of amounts owing on second liens and HOA fees. An outstanding, unaddressed deficiency balance post foreclosure is a ticking time bomb. In California, a lender may have as long as 4 years to commence legal action against the borrower after the original default (search our website for “Second lien liability”). This means the borrower is in jeopardy for years after foreclosure. Once the lender obtains a Deficiency Judgment from a court, they can start drastic collections procedures such as garnishing wages or attaching (taking) bank account balances.

If you are pursuing a short sale, make sure you have representation that understands Recourse & Non-Recourse Loans, Judicial & Non-judicial foreclosures, the California anti-deficiency laws (CCP 580b, CCP 580d, CCP 726) and their application to your loan(s). Real estate agents are barred by California law from discussing ANY of these issues with you. In fact, the California Association of Realtors has admonished its members by stating “Realtors should avoid giving a client a definitive answer as to what is best [short sale or foreclosure]… It is ultimately up to a client to decide, based on the various legal, tax, credit, and other consequences” (Oct 2011, California Real Estate Magazine, “The Devil’s in the Legal Details”). You must engage an Attorney/Realtor® to receive the protections you need in the short sale process.

One of the greatest benefits of a short sale is the ability to negotiate away all obligations associated with your property (including second liens and HOA fees).A short sale provides the best opportunity to address these obligations. Don’t leave this legal task to a “local” real estate agent; reach out to us and we will show you the Attorney/Realtor® short sale advantage.

Get the unprecedented protection that you deserve in negotiating your short sale. Explore your options by calling (949) 264-0966 or contacting us online.

Final Thoughts

A short sale is a very difficult real estate transaction that requires a significant amount of paperwork and extensive negotiation with your lender(s). Almost all of the issues raised in a short sale have serious legal and tax consequences. You only have one chance to make a short sale work. If you have a real estate agent who makes a mistake or misses an important legal issue, you could end up losing the home to foreclosure and facing eviction and a deficiency judgment. Alternatively, if your short sale closes, you might find that you have a whole new set of liabilities because of the terms in your contract.

No matter how much training a “local” real estate agent may have (e.g. Certified Distressed Property Expert, Certified Foreclosure and Short Sale Expert, or any other weekend certification course currently being offered to agents), they simply don’t have the authority to give you legal advice about the short sale contract, the approval letter/settlement agreement, deficiency liabilities, tax implications or the resolution of your breach of contract with the lender. Traditional real estate agents can’t speak to those issues, BUT THOSE ARE THE MOST IMPORTANT ISSUES YOU FACE. The real estate sale is ancillary to the legal settlement of your loan default. How can you feel comfortable in a situation where your representative can’t speak about 90% of the issues that are important to you?

We know how the lenders work. We have worked with and represented lenders for years. We know how to get short sales approved while looking out for your best interest. We understand the tax and legal implications of a short sale, and, more importantly, we can actually provide you with advice and counsel during your short sale transaction. This is something a traditional real estate agent can’t do.

Your lender has a lawyer, you should too. We feel that anyone wishing to complete a short sale should have an Attorney/Realtor® without cost. That’s why we formed Lawyers Realty Group.

Why You Should NOT Hire a Real Estate Agent for Short Sales

Many real estate agents advertise that they can assist you with the short sale process. While real estate agents can technically facilitate and close a short sale, they operate at a distinct disadvantage and cannot offer the same services as a professional lawyer.

You should always choose to hire an attorney over a real estate agent to oversee a short sale for the following reasons:

  • Real estate agents cannot advise you on tax exposure or legal liabilities. A short sale can confer tax and legal liabilities that must be carefully evaluated, analyzed, and negotiated. Real estate agents cannot lawfully discuss or facilitate any negotiation of these elements, which can potentially result in damaging legal and financial vulnerabilities following the completion of the short sale. Our legal team can assess potential tax and legal implications and ensure that a short sale is in your best interest.
  • Real estate agents cannot draft or revise contract provisions. They are only permitted to using boilerplate forms when facilitating a short sale. Any additional language must be written by a qualified real estate lawyer. Our team can create custom contract addendums that will work to protect your interests.
  • Attorneys hired by real estate agents may represent a conflict of interest. Many real estate agents will assure you that they will hire a lawyer to facilitate the short sale agreement. These lawyers represent the real estate agent, not you. They cannot file litigation on your behalf or advocate for you in the same way. Our attorney realtor can provide the services of both an experienced real estate agent and a qualified legal professional.
  • Real estate agents generally struggle to secure qualified offers. Short sales require a buyer that is interested in the property. However, most buyers will not make a formal offer unless they are confident that the short sale will be approved. Real estate agents cannot provide the necessary assurances, keeping them from locking down advantageous offers. Our firm has the tools to secure closings and reach viable buyers.
  • Real estate agents cannot advise you on your bankruptcy options. Filing for Chapter 7 bankruptcy can help you eliminate debt and deficiency liability. When combined with a short sale, bankruptcy can facilitate a protective exit from your mortgage agreement. Real estate agents are not qualified to assess or advise on these options. Our team can offer you free bankruptcy services in conjunction with short sale support.

Our Irvine short sale Attorney/Realtor at Lawyers Realty Group is committed to helping California homeowners address their mortgage default as efficiently and safely as possible. We will thoroughly analyze every element of your current situation to determine if a short sale makes sense for you. Our team will also help you understand and work to minimize any potential tax or credit consequences that could result from a short sale. We will serve as your advocate throughout the process and ensure that you are free from all mortgage liability once the short sale has closed.

Learn more about the benefits of short sales by scheduling a free initial consultation. Call (949) 264-0966 or contact us online today!

The Importance of Negotiating Deficiency Judgments and Other Liabilities

It is important to understand that your mortgage loan agreement is a type of contract. When you are unable to make payments, you are in breach of that contract, giving your servicer the ability to take legal action against you. This typically involves foreclosure and eviction, but it can also include seeking deficiency judgments.

In a foreclosure, your servicer will eventually hold an auction and sell your home. A deficiency balance occurs when the auction sale price is lower than your outstanding mortgage balance. You can be held liable for this deficiency, and your servicer has up to 4 years to pursue formal legal action against you if you are unable to settle the difference. A successful deficiency judgment can enable your servicer to garnish your wages and bank accounts even though you have already lost your home.

A short sale allows you to negotiate the elimination of any current or anticipated deficiency issues. It can also release you from any liens or any other encumbrances placed on the property.

A successful short sale should completely extricate you from your mortgage obligations. Our Irvine short sale Attorney/Realtor can evaluate your unique situation and can help you navigate all potential obstacles and consequences of a short sale agreement.

Going Above & Beyond for Our Clients

  • “He worked with us in our case and we felt as if he was on the front battle lines with us taking charge.”

    - Julia R.
  • “His commitment and professionalism handling complex and critical real estate matters is top notch!”

  • “A short-sale can be a long, unpleasant dance with the banks, but this team makes it so much easier.”

    - Arnold B.
  • “I can't emphasize how important it is to have legal representation on your side in dealing with the banks, but if you want real representation that's tenacious, honest, professional and successful, you must work with Derik and his team.”

    - Macko M.
  • “I have used several realty companies before and Derik is by far the most professional and exceptional businessman I have dealt with.”

    - Jeremy S.
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