Short Sales and Deficiencies

Although I am not an attorney, I have been talking to attorneys and the message I get regarding short sales is always: Beware!

Many of us are using loss mitigation experts to assist us in attempting to short sell properties we wish to dispose of that are underwater.
There is a notion, which is mistaken, according to the attorneys I have talked to, that just closing on a short sale (which means the lender approved it), magically gets rid of our potential liability for any deficiency.

I believe this is entirely false.

Every attorney I talked to emphasizes that even if the lender has approved of a short sale, there needs to be SPECIFIC LANGUAGE in the contract as well as in the closing documents, stating explicitly that the loan has been satisfied fully and that the lender will not retain the right to sue for a deficiency at a later date.

I have been talking to many of you about my on-going recommendation to use a lawyer in conjunction with the short-sale specialist you are using. I believe this is quite important and this blog post enables me to warn everyone I may not have talked to. We also put this post in our recent newsletter. The lawyer can compose the right language to be put into the short sale contract, make sure that the right language is present in the closing documents, and demand that the lender put the right language in the documents before closing.

I believe using a lawyer while attempting the short-sales is a great safety mechanism. Just because you closed on a short sale does not necessarily make you immune to a future deficiency suit. The lender may even just sell the note to a collection agency who then may attack you and try to collect.

I recommend taking the necessary steps to get legally protected in a short sale.