Seller Protection in a Short Sale
I have received a few comments where the Seller received short sale approval from the lenders(s) but at terms the Seller could not accept. For example the lender refused to ‘release’ the seller from future liability. See my blog on Short Sale Release Language. To protect your seller, make the agreement contingent upon your selling client receiving a full release from any future obligations from the lenders. The current Addendum to the Short Sale declares, that the “Purchase Agreement is contingent upon Seller and/or Seller’s Agent obtaining approval from Lender (“Lender Approval”) to accept an amount less than what is owed on the Property,” page 1, Paragraph 1, line 15.
What you should say, “The contingency of paragraph 1, page 1 shall not be met until all terms and conditions of Lender Approval are approved by the Seller, at Seller’s sole discretion, and shall include the Seller being released from any future liability from all parties with a vested interest in the forgiven debt.
The Greater Las Vegas Association of REALTORS® has not yet changed the language on their form, and they may not. Therefore I added it on paragraph 11, automatically here . If it is not required it can be removed.
Nevada Residential Real Property Law 
November 13, 2009 at 10:33 am
brilliant!!
could you add this to the listing agreement addendum also?
November 13, 2009 at 11:12 am
On the listing? That’s interesting, but the buyer is not a party to the listing, the suggested sales price is found in the listing but no other terms, such as estimated close of escrow date. If the seller feels more comfortable by adding this language: “this listing is a short sale and is subject to the lender(s) approval of the cancellation of debt, the terms of which shall be approved by the Seller, at Seller’s sole discretion, and shall include the Seller being released from any future liability from all parties with a vested interest in the forgiven debt.” However, I believe stating it in the counter offer is sufficient.
November 19, 2009 at 3:55 pm
Darren,
I like this language and will incorporate it. I think it is important to also specifically address the offer is contingent upon the lender accepting payment in full and not a seeking judgment or liens. If the approval letter does not address judgments, this language could be helpful, should they seek a judgment later.
November 19, 2009 at 4:10 pm
I just read the language again. I must not have read the last line – it states release from future liablity! Thanks,
December 11, 2009 at 9:39 am
Excellent wording! Now we just have to make sure that the bank does not do addendums to negate the clauses. This should work well here in Arizona as well.
December 26, 2009 at 4:35 pm
Good info. I am working towards a short sale with BAC. I have language in my “Short Sale Addendum to Purchase Agreement” that states “short sale is contingent upon the lender fully and forever releasing the debt”. Will this short sale addendum document override the lender’s(BAC) approval letter stating they “may pursue a deficiency judgment for the difference in the payment received and the total balance due, unless agreed otherwise or prohibited by law, if the short sale closes on the loan referenced above”?
December 26, 2009 at 4:48 pm
I am working towards a short sale with BAC and had requested a document stating they would not come after me for a deficiency judgement. The BAC negotiator said he could not issue anything in writing and said “generally the parties are issued 1099’s but the investor does always reserve the right to pursue the deficient amount”. Is it advisable to move forward with a short sale that does NOT protect me from future deficiency judgments? If not, should I get an attorney to help facilitate this language adjustment on my BAC approval letter? I am scheduled to close on 12/31/09 and am wondering if I need to back out until I can get the proper language on my BAC approval letter to protect me from future judgments.
In a previous blog on the Short Sale Release Language page, on October 16, 2009, you recommended writing a letter to the lender. You also mentioned the Stout Law Firm was able to write a letter to amend this language with BAC for a similar short sale. I am working with a Prudential Realtor. Would you recommend I engage the Stout Law Firm to amend my BAC approval letter, or is there a better way to proceed?
December 28, 2009 at 11:54 am
Yes, I recommend you retain the Stout law firm. You have been made aware that the Lender is refusing to release the right to pursue a deficiency judgment. You should consult with an attorney if another route may be better, such as foreclosure or bankruptcy. Darren Welsh darrenw@americanagrp.com
December 26, 2009 at 4:56 pm
If a bank, such as Bank of America, participates in the FDIC’s loss sharing program with lenders, when they go after the deficiency judgment, do they include the monies that they received from the FDIC to offset deficiency judgment amount owed? For example, if BofA buys a $100K note mortgage from C-wide for $50K, and then has a short sale for $50K. At this point, the FDIC steps in and pays 80% of BofA’s loss, based on the original face value of the loan. So, $100K – $50K = $50K. 80% of $50K = $40K. BofA nets $50K from the sale of the property + $40K from FDIC, totaling $90K. In a deficiency judgment on a $100K note in this example, would BofA come after me for $10K ($100K – $50K short sale – $40K FDIC) OR come after me for $50K ($100K – $50K short sale)?
December 28, 2009 at 11:54 am
I am not sure how the FDIC affects these judgments. I suggest you contact your federal representatives and ask the same question. Darren Welsh darrenw@americanagrp.com
http://ensign.senate.gov/public/index.cfm?FuseAction=Contact.ContactForm http://berkley.house.gov/contact/email.html http://reid.senate.gov/contact/index.cfm
January 22, 2010 at 3:55 am
[…] This is a follow up to my November 13, 2009 publication on Seller Protection in a Short Sale. […]
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