I've been a big fan of agents requiring their short sale clients to obtain attorney representation. A big reason for this position is that I keep seeing and hearing horror stories of transactions involving realtors or short sale processors where they gave really bad advice (to put it mildly). Simply put, a seller contemplating a short sale must consult an attorney, and not rely on their agent or the short sale processor for legal advice.
I've seen many instances where an owner was told by their agent that there would not be a deficiency if the sale went through. The contract from the bank included the following provision: "[Lender] 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, if the short sale closes on the loan referenced above. In addition, if this loan is covered by mortgage insurance, the mortgage insurance company may reserve the right to pursue the seller for the deficiency . . .."
It's pretty damn clear that this lender is reserving the right to pursue the balance of the loan. They further note that a mortgage insurer might be able to pursue the balance. So what made this realtor believe that the lender wouldn't be able to pursue the balance? Supposedly, it was another paragraph that provided: "Seller is to contribute $0.00 to assist in the closing of this transaction. This contribution will be in the form of a promissory note."
It seems obvious that a seller should consult an attorney about whether or not the lender could pursue a deficiency. But, what about all those attorneys doing short sales that advise their clients not to worry about the language? "It's OK to sign it. They never go after the shortage." As I've said in earlier posts, most of these deals seem to benefit everyone but the borrower.
Consult an attorney. I would highly suggest you check out this page here: Deficiency-Judgments
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