Nyles Courchesne Massachusetts Real Estate Attorney

The simple answer is that a short sale costs nothing.  Most residential real estate attorneys do not charge a consultation fee. I do not charge a consultation fee!  For legal fees I rely on the bank to absorb my fees in the short sale payoff to the bank.  

That said, the more complicated answer regarding the costs of a short sale is that the cost of the legal fees and all other fees related to the sale (Realtor Fees, outstanding utilities, etc) are all added to the deficiency. The deficiency is the difference between the total amount that the lender(s) is owed and the amount that they receive through the short payoff.  If the lender is taking less money in order that a Realtor or attorney fee may be paid, then the deficiency will increase by the cost of these services. So, the important question is:  What will happen with the deficiency after the sale?

There are several possibilities as to what will happen with a short sale deficiency:

1. The lender may reserve their right to pursue the deficiency.

2. The lender may demand that a portion of the deficiency is paid in cash or through a personal note.

3. The lender may forgive the entire deficiency and settle the account as paid.

The final cost to continue is the tax consequence of a Short Sale. The Federal tax may not be an issue, depending upon whether or not the mortgage was a purchase money mortgage used to purchase a primary residence.  However, the State tax must be paid.  There is no automatic State exemption in Massachusetts.  this is why I always recommend that a short seller consult with an accountant before committing to a short sale!

We are pleased to provide an example of a Federal Government Home Affordable Foreclosure Alternatives (HAFA) short sale program Initial Approval that was generated through bank of America's REDC division. (REDC is a division of Bank of America that deals with these types of short sales. There are other divisions that also provide this service.)

Below is a brief timeline of our experience with this phase of the HAFA short sale initial approval:

2/16/11 - Met with client to review short sale options and best option appears to be cooperative short sale with HAFA as the largest payout to Seller $3,000.

2/17/11 - A new file was opened and authorization sent to Bank of America to begin approval process.

3/2/11 - BOA responds with "Packet sent to Seller who will receive the information within 5-10 days".

3/11/11 - Documents have been compiled and are submitted to Bank of America/REDC on behalf of the Seller.

3/25/11 - List Price is established on-line. Agreement will be drawn up by Bank of America and sent to seller.

3/29/11 - Short Sale Agreement is received and must be approved by the seller.

The basic approval is as follows:

• The process begins by establishing a list price. Once the list price has been set, the property must be actively marketed for 120 days.

• When an offer is received, a Request to Approve a Short Sale (RASS) form must be submitted. A signed purchase offer and proof of funds must be submitted with the RASS form.

• All outstanding liens must be paid or released prior to closing. The HAFA program allows up to $6,000 total of all subordinate loans to be deducted from the gross sale proceeds to pay subordinate lien holders.

• After closing, up to $3,000 can be made available to the seller to offset some moving expenses.

It took six weeks to get the property on the market, but with an initial an initial approval we have a sure starting price; higher likelihood of success and the greatest benefit to the Seller i.e. $3,000 cash and no deficiency!

Disclaimer In accordance with rules established by the Supreme Judicial Court of Massachusetts, this web site / blog/ newsletter /email must be labeled "advertising." It is designed to provide general information for clients, prospective clients and friends of the firm and should not be construed as legal advice, or legal opinion on any specific facts or circumstances. This web site / blog is designed for general information only. The information presented at this site / blog should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

I was holding off and then I saw something that opened my eyes to facebook. Fora long time i have been debating putting a page together for my law firm, but it seemed like I would be just another annoying fan page that people would ignore. Then I took a look at the number of real estate professionals who have become my friends on facebook. It occurred to me that many of them may not realize that I have truly developed a great short sale practice with a dedicated short sale processor.

So, if you are wondering what I am working on this week, no need to check my facebook profile. . . You just might be getting asked to like my short sale fan page. . .

Just think of the possibilities. . . maybe not just a fan page of everything you do - just a fan page about one niche thing that people may be looking for!

As a MA Short Sale Lawyer, I have seen many short sales fail for a variety of reasons. In Western Massachusetts, one of our impediments is our strict use of the standard Realtor Contract and our local closing customs. Following is a list of suggestions and some reasoning behind each provided in the hopes that these ideas may catch on in MA (and elsewhere as they may be applicable outside of MA) and lead to more Short Sale success stories:

Problem 1: Inspections after contracts are signed/and /or after short sale approval

It is customary in much of Western Massachusetts to make an offer and sign contracts that provide for a ten day inspection period. In short sale transactions in Western Massachusetts, this ten day inspection period is often delayed until the Seller has obtained "Short Sale Approval". This frugal custom can be disastrous to Short Sellers and the professionals working for them! In Short Sale transactions, the inspections should be completed prior to finalizing the sale price on the purchase and sale agreement for a number of reasons:

1. If there are repair issues and the contracts are already signed and submitted to Seller's Lender for approval; Seller's Lender may not change the price. If these inspections do not take place until after the Short sale is approved, the Seller's Lender will absolutely not change the price and the deal is as good as dead. By completing inspections prior to finalizing the contracts, the Buyer has an opportunity to lower the price in accordance with the repair issues. Also as a plus, the Seller can use the inspection report to further justify the sale price.

2. Buyer's delayed inspections may cost the Buyer opportunities in the event that they do not proceed with the short sale due to an inspection issue. Consider that in an ideal world a short sale approval can take 60 days and countless hours of processing to obtain. If a Short sale is obtained on day 60 of the contract and the Buyer performs an inspection on day 70 only to back out of the deal due to X and Seller has no funds to fix X, Buyer has wasted an entire season of house hunting. Not to mention the possibility of losing the opportunity to take advantage of the current low interest rates and the opportunity to purchase many other homes that came and went on the market. . .

3. Buyer's delayed inspections and ultimate withdrawal over an inspection issue may have just cost your Seller the opportunity to sell their home short. Let's face it, the collections machine never sleeps. In most instances we only have so much time to sell a property short before the bank forecloses. We cannot take this unnecessary chance that our deal may blow up over an issue that can be addressed on the front end of the transaction. If the parties cannot agree, the seller must move on to a more reasonable flexible Buyer. . .

Problem 2: Automatic Seller Pays Provisions

The standard contracts and addenda in Western Massachusetts require that the Seller automatically pay for certain items that can come up in the sale of residential real estate. These items include the following: Termite issues (Seller is on the hook for the 1st $1,000 in termite treatment or repair), title V (septic) issues (Seller is on the hook for the $300 to $500 test and up to $10,000 in septic system repairs) and title issues (Seller is on the hook for the 1st $2,000 in title issues). The Sellers that I am dealing with often do not have the funds to pay for any of these issues.

The answer under these "Short Sale" circumstances is that the Buyer needs to pay for all inspections at their own risk and adjust their sale price accordingly. There simply is no money in these transactions for these Seller pay provisions.

Problem 3: Customary Charges that the Banks won't Pay for

Although I have often said that when it comes to negotiating in real estate transactions, it doesn't cost anything to ask, when it comes to Short Sales, I feel that I keep submitting all of the costs and fees that I would normally expect the Seller to pay for in a real estate transaction and the Banks just keep saying NO! These fees include the final utilities for the Seller and certain closing costs that a Seller is typically charged. as the Seller's attorney I have on many occasions "eaten" some of these fees myself, just to get the deal done. Sometimes the feast of such fees and costs is so great that the Realtors slash their commissions to help make it happen.

Unfortunately due to the frequency that Banks are cutting the Realtors commission to 5% and cutting the attorney fees as well, the practice of absorbing these fees just isn't working and can lead to disaster at the time of closing. There are a few different categories of these fees and an ideal way that we can agree to handle each one:

1. Adjustment Issues: Sometimes the bank won't pay the final water bill. Sometimes the bank won't pay more than X in taxes; sometimes the bank won't pay the final electric or other municipal service fee, trash, sewer, etc. . . I am sick of paying these fees out of my fee! Let's go back to the beginning of these transactions and look at where we are with these charges on day one, take our best guess as to what they will be in 60 days and deduct that amount from the negotiated price. We could simply change the rules with regard to adjustments and state that "Buyer agrees to be responsible for up to $1,000 or $2,000 in adjustments or other Seller costs at time of closing." Then just reduce the sale price by that much. . .

2. Along the same lines, there are some settlement charges that a Seller usually pays in Western Massachusetts, but the same principles would apply elsewhere: For example, in Massachusetts the Seller must pay for their overnight fees for payoffs, discharge recording fees and discharge tracking fees. For 2 mortgages this would be approximately $340; and the banks are not paying these fees. Let's place a provision in the contract that says the Buyer will pay those fees and move on. . . again, I don't want to pay these fees and neither do the Realtors. We can however, contract for the Buyer to pay these fees. . .

3. A pet peeve of one of the Realtors that I work with is that in short sale listings he gets stuck paying fees related to fulfilling the "smoke detector certificate" requirement in Massachusetts. Because our Short Sellers have no money, the Realtors often pay the bill for the smoke detector inspection ($50 +/-) and often the costs of batteries and several replacement smoke, carbon monoxide and/or fancy photo-electric smoke detectors. This can be a few hundred dollars in expenses and it is just not fair for the Realtor to have to pay. In the contract addendum we use, it states that if the Seller's Lender will not pay for these smoke certificate items, the Buyer must pay. . . problem solved.

The key to the vast majority of all of these issues is that we have to treat short sales like the banks treat their bank owned properties. Because they are a bargain, the contracts for bank owned properties place more of the requirements and costs to the advantage of the seller. They have their own over-riding Bank addendum that knocks your standard contract ands local customs on their ear. We need to do the same thing with these short sales. We need our contracts to require that the Buyers inspect the property now; set the price for an "as is" sale; and in that price subtract another $1,000 to $2,000 cushion as needed to pay for any municipal utility costs, unpaid taxes, Seller closing costs, title v inspections and smoke detector certificates and supplies so that when we get the approval and the bank refuses to pay for any of these things, we may still succeed with our sale!

As a real estate attorney with a growing short sale practice I have begun to identify patterns that lead to short sale success and failure. Generally speaking a short sale's success or failure can be determined with a review of the current title.

THE ABSOLUTE IMPORTANCE OF CHECKING THE TITLE

Short sales as we all know are long term professional commitments that can take months to come to fruition. In one short sale transaction wherein I represented a Buyer, the Seller's attorney had not checked the title prior to accepting the short sale client. We got into heavy contract negotiations over some repair issues. The Seller would not back down, insisting that they would bring no funds to closing to pay for the repair issues. At that point I was curious to know if there would be any other issues over adjustments, etc and I found that the taxes were not in the Sellers' names. In fact upon further review, I determined that the Sellers had lost their home to foreclosure six months prior. THEY DID NOT OWN THE HOME THAT THEY WERE TRYING TO SELL! That was the end of that deal. How do you think the Realtor felt after marketing that property for 3 months, negotiating contracts, etc. . .

PEOPLE DO NOT KNOW WHAT THEY OWE

Out of this experience and other experiences from my office (we also do collections work!) we have learned that when people get into debt, they stop opening their mail. Your sellers may not know what they owe to whom or where they are in the collections process. There could be multiple tax, credit and mortgage liens. The more liens, the more improbable your short sale success. If there are several lines on a property you should walk away and work on something that will lead to a commission!. . .

THE FORECLOSURE IS SCHEDULED FOR TOMORROW

Another terrible thing to have happen is to take a listing only to have the bank foreclose the next day. Again, in most jurisdictions there will be some indication of foreclosure activity in the title. (For example in Massachusetts you will find an "Order of Notice" Recorded a couple of months prior to a foreclosure.)

As a service to all of the Realtors that I do business with, I run the title before they take the listing. If your attorney source is not doing this for you, it is important that as a Realtor you learn to do it yourself so that you do not waste any of your valuable time on a Short Sale that will never make it off the ground.