Prior to July 15th’s passing of senate Bill 458 By Jerry Brown, second mortgages could pursue short sale sellers with a deficiency judgement making life a little difficult. With Senate Bill 458 things have changed, making things easier for underwater home owners to finally break away from an over leveraged home. For questions please contact Jennifer Klein (916)230-3880 or email JK@RosevilleAndRocklin.com
Seller Johnson needs a short sale, he is underwater and sees no appreciation in sight. He decides that it is in his family’s best interest to get out from underneath this sinking ship. He contacts an investor who promises a quick close. The investor then comes in and writes an all cash offer for considerably less than what the property is worth. The investor then begins the short sale process, operating to meet his offer number. The investor will only buy at that number, because it makes “financial sense.”
That same investor will contact a Realtor and ask that the Realtor agree to list and sell the property for an inflated price, offering the agent sometimes double or triple the commission. After negotiating with the bank the investor receives the settlement letter for the short sale amount. The investor closes on the home and flips it to the retail buyer arranged by the Realtor. The investor picks up a check from title. The Realtor does too. Everyone wins? Not quite!
In most settlement letters issued by the bank, there is deficiency language and legal jargon which no doubt loopholes the bank to retroactively come after someone. Some sellers are so distressed they are willing to sign off on whatever will get them out of the situation. Even if the settlement letter releases the seller from recourse, it only addresses deficiency language. It in no way addresses any potential law suit the bank may feel like they may have against the parties of the transaction.
As an agent, I choose not to get involved in these types of transactions. While I definitely see the argument and logic, it’s not worth the risk to my future. If the house can sell at what is retail, why not just sell it at retail? Furthermore, if the seller receives an unforeseen deficiency judgment, the amount of the deficiency will be a lot larger if “purchased” by an investor and the seller will be responsible for more than if the home was just sold at retail.
There are exceptions to this rule, but tread lightly distressed homeowners are not prey. They are just stressed. The banks will find a way to recoup any losses they have suffered. The reality is this is what they do. For most counties, chain of title is a matter of public record, it only takes a bit of research to figure out what happened on the sale. It’s not worth the risk.
For more information www.RosevilleAndRocklin.com or email JK@RosevilleAndRocklin.com