Client wanting out of the contract to file bankruptcy
I represent a seller on a short sale with a first and second with a possible short window of getting an approval. I called to get another tax document that was not requested in the beginning from the second and the seller informed me they want to do BK. I explained that is fine that we can to short sale and BK at the same time if their lawyer is experienced in this process. The lawyer can even review the approval letter. The client insists that the lawyer told them that the bank will go after them if they do a short sale and to put the home in the BK. Now the delima.....they don't have the money to file BK but still don't want to do the short sale for fear that the bank will come after them in the future. I have exhausted all ideas and am up against a lawyer that keeps telling them a BK is the best option. He wants 1100 to do this and they qualify for the HAFA relocation funds of 3000. Hmmm does not make since to me. They are in breach of contract because they don't have the money to file BK for another 4 or more weeks but won't cooperate in getting the short sale finalized. Seller and Buyer wont sign mutual release. Any suggestions. Would you call the bank and tell them that if they don't approve the client is going to file BK..(I would think that is unethical) Do I just sit here and wait for the BK and the deal die....any advice greatly appreciated.
Replies to This Discussion
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Permalink Reply by Joe McDermott on
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The ability of the bank to come after them if they do a short sale then BK is suspicious sounding to me. You need to check with another attorney because this varies from state to state. My experience here in CA is that shorting after BK is when the nightmare begins. Shorting THEN BK'ing is ideal because the shorted lenders can still be included in the BK.
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Permalink Reply by William F Griffin Jr on
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First of all how does the attorney know that the lender will seek a deficiency judgment ? If there is a possibility of approvals from the lenders soon I would think the attorney would wait for the approvals, reveiw them and look for specefic verbage pertaining to deficiency judments. And if they are approved for HAFA the investor must waive rights to seek a deficeincy judgment and may not require a promissory note for any defiency.
I dont think you are overstepping your bounds at all. I think the attorney just wants to get paid for filing the BK.
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Harry, there is no harm in continuing with the short sale. Once you receive the letter and if it is acceptable then you sign it and move forward. If you do not like it you do not sign and you do the BK.
We had a customer that went to an attorney who told our customer to NOT short sale and to fire us and file a BK. The seller fired us and per his attorneys advise went to file a BK. So he stopped payments on everything PER his attorney and proceeded to file BK.. But he ended up not qualifying for the BK, fired the attorney called us and apolagized and we proceeded to short sale the house......NO DEFICIENCY. Attorneys are not always right.
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Permalink Reply by Kevin - Greenville, SC on
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Before rushing into BK you might want to purse a short sale and HAFA
http://www.bkattorneys.net/2010/03/phoenix-short-sale-attorney/
Bankruptcy debtors may benefit from short selling their home
http://www.bankruptcylawnetwork.com/bankruptcy-debtors-may-benefit-...
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Permalink Reply by Wendy Rulnick on
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Lisa - You have to let the attorney advise the client. You could ask the seller if he has asked his attorney how to deal with the pending sale (i.e. disclosure to buyer, etc.). If the seller wants to cancel the sale, and the buyer does not agree, then the buyer might also get legal counsel.
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Permalink Reply by Lisa Brown on
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Wendy
I have let the attorney advise the client and in all listings of short sales I advise my clients to seek legal advise from a lawyer and accounting advise from an accountant and also give them HUD approved phone numbers for credit counselors before they list to avoid this situation. The deal is dead if the seller files BK but they can't file because they don't have the funds. Another twist is this lawyer suggested they list the buyer and the agents as creditors so they cant go after them. (I would not waste my time) I agree with William....how does this lawyer know they will seek a deficiency ....I offered to work with the lawyer and also let him review the approval. I have already gotten approval that they qualify for HAFA.....Sellers are not wanting to proceed for FEAR of what the lawyer said can happen. Regardless of my opinion of them getting bad advise I am moving on. I do not want this deal to stay together for the COMMISSION as any agent that does short sales knows they are not profitable listings with the time involved. We will now have another home sit empty and probably sell for even less by the time the bank can put it on the market and neighborhood values decrease and a buyer who wanted this home will have to find another.....Life goes on
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I think the attorney should file the BK free of charge. The Sellers should also consult with another attorney as this attorney cleary in my opinion is not looking out for your sellers but instead looking for a paycheck. The attorney also needs to educate himself with HAFA. I had a customer walk in our office to tell us that we did not need to continue on with her short sale because she just filed a BK and her attorney that filed the BK told her that once she files the BK the bank CAN NOT forclose on her. Long story short, she filed the BK and is still in forclosure. Great advise from a stand up attorney just looking for a paycheck. We advise all of our customers to consult with an attorney. Sometimes the attorneys get it wrong is all I am saying. And of course a Bk attorney doesnt get paid when we short sale. I would just move on and let the folks pay the attorney money they dont have and get forclosed on.
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Permalink Reply by Patti Lyles on
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I am in California & want to share my experience with BK and hostage money.
My Sellers always have an attorney evaluate their Short Sale Approval letters before signing. Last Year my Seller’s attorney does her review and suggested that he go to a BK attorney. Why? Because PNC (junior lien) + (really bad bank to do short sale with) wasn’t going to budge. They wanted $24K to make deficiency language the way Seller wanted it.
BK attorney instructs the Seller to just file BK and do the Short Sale after, that PNC will get zilch. Always disclose to the bank(s) and SHOW them a letter from BK attorney that they are going to file BK, as this was a game changer a few times in my other SS’s. Buyer agrees to wait the 3-4 extra months. Both short sale approvals expire.
4 Months later I go back thru the entire SS process of getting both Banks new approvals with the final BK discharge papers in hand. Then I find out that even though the debt was fully discharged - PNC could still play hard ball and not release the LIEN on Title. BK attorney steps into this game, as he claims this can’t happen and comes out telling me PNC can & will hold the Title hostage. PNC will let it be foreclosed upon and do the Trustee Sale in 21 days. ARUGGGG
Because Buyer still wants property she has counsel with her own attorney to come after me or anyone they can. I contact my own attorney and quickly negotiate with PNC to bring it down to half = $12,000. Buyer voluntarily pays off the PNC hostage money and we close a deal.
What did I learn?
1. Sucks to do deals with PNC they are smart like a fox.
2. Attorneys don’t know their expertise as well as I presumed. Always get second opinions on the complicated deals!!!!!
3. 3 attorneys got paid $400.00 an hour. Sellers BK attorney got paid more than me.
4. Disclose everything to the Buyer in the SS. The buyer’s attorney thought he had me but I disclosed everything to the Buyer by giving them emailed updates ON EVERTHING.
5. Now I have proof that a Buyer will voluntarily participate to get the property they want. This deal reinforces that it is my job to be a SS negotiator that won’t blink and won’t stop educating herself.
6. Short Sales are dysfunctional Disneyland & every ride is scary and unique, so I need my big girl panties on when I get behind the wheel of each SS.
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My original point is supported by both Lisa's and Patty's experiences. Yes, we're not attorney's and should not give legal advice. However, those of us who have enough experience can spot an idiot lawyer a mile away and should freely advise our clients when we suspect they're talking to one.
It is appalling to me that ALL lawyers are placed in such high regard when it comes matters such as short sales, BK's, etc... Just because they have a JD doesn't make them experts. Like Realtor's, they become competent through time and practice. The horror stories I hear in our office of homeowners who have been screwed by miserable advice they've received, from BK attorney's especially, has left me very skeptical.
Case in point...BK attorney's routinely advise their clients to BK, then let the property go, or short sell if homeowner wants. This is bad advice in many cases for two reasons: 1) The attorney's almost always fail to explain that, to truly get rid of the junior liens, they must be stripped as part of the BK, a process not normally done if the property is going to be disposed of; 2) The credit impact of a short sale AFTER a BK is monstrous. Anyone involved in mortgage lending will tell you that any derogatory credit event that occurs AFTER a BK makes a borrower Kryptonite to mortgage lenders. And, contrary to what many BK attorney's say about a lender's ability to post negative credit info post-BK, the fact is, lenders DO report the derogatory info when the short sale or foreclosure is complete.
The fact is the BK attorney is selling these folks a BK. They think the BK is a cure-all and that is not always the case.
"Short sell THEN BK if one must," should be the ideal path for most home owners. This approach has helped many of our clients avoid bankruptcy because they have relieved themselves of the largest debt hurdle they have and they have hope as a result and can work with the remaining creditors once the house is gone. This doesn't work for all clients we help, but for most it does.
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+1 on what Pattie and Joe said.
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Is this the attorney representing them in the Short Sale or an outside BK attorney. Of course the BK attorney is telling them to file BK, that's how they make money. If it is a HAFA and only one lien, there is no liability on the remaining balance of that lien. Send the HAFA verbiage to them, maybe that will help plus the potential $3000 incentive verbiage.
Don't give them this advise directly but have them ask their BK attorney, what would be the harm in finalizing the Short Sale and then if they do pursue them for the difference, you can work out the BK on the remaining unsecured amount for a far less amount than if it was foreclosed or even the secured amount before a foreclosure.
When I put a contract together on my Short Sales I usually direct the sellers attorney to send out a separate addendum to the buyers attorney stating that if the 3rd party lien holder(s) do not release the remaining liability of the loan(s) than the seller at their own discretion could opt of the purchase agreement. This helps give my clients piece of mind when they move forward and I tend to get less resistance. It also doesn't hurt to have that in your Short Sale package for negotiating purposes.I would highly suggest to them that they get 2nd opinions or 3rd opinions on BK. We as Realtors are not equipped to give legal advice on this since there maybe other reasons they are considering the BK such as other outstanding debt, other judgments etc.
Don't ever come from the position that they are in the wrong, you are only empowering the BK attorney, alway make sure they understand your advice and direction is in their best interest you are just helping them look through all potential options that will put them in a better position. Ask them in three years from know, would you rather have Short Sale in your past or a Bankruptcy & Foreclosure. Bankruptcy will usually only postpone the Foreclosure, not prevent it. Let them answer if they feel that would put them in a better position vs. Short Sale. If the Short Sale works out, liability is released and they can potentially buy another home in 3 years, wouldn't that be better for them? You might find out there are other reasons on why they are considering BK that has never been disclosed to you. You might just find out that they are confused. Help them work through it, come from contribution and reflect on their future.
With everything I learned about Short Sales, if someone asked me what the key to closing a Short Sale is, it's simply persistence. Persistence and Patience with both the lien holder(s) and clients. Don't give up! Worst case scenario, if they do the BK, you can still sell it as a Short Sale after the fact depending on the outcome of the BK. I have done this before, they aren't fun but they can work out.This seller is going through a very stressful time, you need to help them work through it. Even if the sale doesn't happen because of their decision, they will likely remember you for helping and assisting them which could result in other business.
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Permalink Reply by Michael Kohler on
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It appears as if the attorney may not have the enough experience with BK and short sales.
You should advise your client to seek a second opinion from another attorney that has extensive experience with BK's and short sales.
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