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.

Memorandum

RE:     Lawsuit Update

            For Prudential, Americana Group, REALTORS®

            Selling Salespersons of the Cosmopolitan West Tower Only

Deadline for Your Buyers To Respond:  December 4, 2009

Hogg vs. Nevada Property I, LLC

Eighth Judicial District Court, Clark County, Nevada Case  No. 09A582541

Related Cases: 

• Eighth Judicial District Court, Clark County, Nevada Case No. 09A582669 (Consolidated)
• Eighth Judicial District Court, Clark County, Nevada Case No. 09A583375 (Consolidated)

On October 20, 2009, the District Court in the above-referenced matter(s) Ordered “A Preliminary Approval of Class Settlement and Settlement Class Certification.”

All interested parties should log on to the website http://www.cosmosettlement.com to register and lodge their concerns, approval, etc. The deadline to respond is December 4, 2009.  How and where to respond is in the Memo from the Settlement Class attorney which can be read by clicking here.

This case’s documents can be viewed at http://wiznet.wiznet.com/clarknv/pages/login.jsp, the lawsuit’s Case Number is A582541.

Clark County Court Records are located via the internet on: https://www.clarkcountycourts.us/Anonymous/Search.aspx?ID=900.

Judge Elizabeth Gonzalez reports that the next hearing is December 14, 2009, at  9:00 a.m. Department 11, Courtroom 14C (14^th Floor), 200 Lewis Ave., Las Vegas, Nevada 89155.

 

          Prudential, Americana Group, REALTORS® cannot offer legal advice to a Buyer of the Cosmopolitan.  All Buyers of the Cosmopolitan are encouraged to seek their own personal legal representation in reviewing this matter. If the Buyer has already retained counsel, the Buyer should address this matter with that counsel.

In my September 10, 2009 Short Sale  discussion I spoke of 7 hot topics on short sales.  Number three (3) was the “Loans – Foreclosure Debt Recovery”.  I reminded you to know if there is a First – Second – Third Deed of Trust encumbering the home?  Also to know the terms of debt forgiveness.  Have the seller ask the lender, “what are the terms of the forgiveness of the debt?”  Charge Off? Waived? 1099?  Advise the seller to seek legal counsel.  Nevada is a deficiency judgment state, which means a seller can be sued after they have been foreclosed upon.  A second can pursue a foreclosed owner for six years.  By performing a short sale, instead of foreclosure, the one-action rule and the deficiency protections are no longer applicable.  The Seller in a short sale will have a tax consequence.  Sellers in a short sale may also be sued by the lender for breach of non payment of a contractual obligation.  The statute of limitations in Nevada for breach of contract is six (6) years.

The following are some examples of language used by the lenders to deal with debt.  Some are good, some not so good, some BAD.  If you have examples, redact the confidential information, and send them to me at darrenw@americanagrp.com

Example 1 – Not GOOD

In this one, the lender states, “may pursue a deficiency…”  The seller may be sued for up to six (6) years.

BAC Home Loans Servicing, LP 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 deiciency based on the terms of the mortgage insurance policy.

What can you do?

Write a letter to the lender. 

Please remove that paragraph and insert language to the affect that all parties agree to release each other for any and all claims”

Recently the Stout Law Firm, James R. Stout, Esq., 4560 S. Decatur Blvd., Suite 201 Las Vegas, Nevada 89103, 702-794-4411 was retained by a client of Prudential®, Americana Group, REALTORS® and such a letter worked to amend to this language on a Bank of America lender short sale.

Example 2 – GOOD

In this one, the lender states, “settle your account…”

This letter is to inform you that Chase Home Finance LLC has agreed to your request for a Short Sale, and will accept a minimum of $$$$$ to settle your account and release the lien(s) on the above-referenced Property.

Example 3 – GOOD

In this one, the lender states, “will be charged off and no additional payment will be required…”

Our Customer(s) agrees that upon the posting of the agreed upon Short Sale amount, the remaining loan balance, if any, will be charged off and no additional payment will be required.  Please note a $0.00 balance will appear on the Customer’s file with the credit bureau as “Account legally paid in full for less than the full balance.”

Example 4 – GOOD

In this one, the lender states, “full and final satisfaction on the first mortgage …”

This letter will confirm our acceptance ofthe short payoff on the above referenced property.  We agree to accept the proceeds generated by the $$$$ “as is condition” purchase as full and final satisfaction on the first mortgage indebtedness on the above referenced property.

SEE my OTHER blogs on short sales:

7 recent tips  

Demand to Close  

NV Mediation Program and How it Affects Shortsale  

Short sales When Seller Files BK

Click the following for:

IRS publication on how 1099 taxes are calculated, exempt, etc.  

IRS explanation as to taxes resulting from Foreclosure and Debt Cancellation.

Deficiency EXPLANATION

 Taxes EXPLANATION Personal Residence

 One Action Rule EXPLANATION

The BPO Rider in Nevada was created per the July 1, 2009 new law as discussed in my June 19, 2009 Legal Update . 

Prudential, Americana Group, REALTORS® created a rider to meet the July 1, 2009 deadline, but the form has now been modified/adopted by the Greater Las Vegas Association of REALTORS®.  The new BPO Rider is now on Ameriforms . 

Here is an example of how to fill out the new GLVAR form.

 IMPORTANT SHORT SALE DOCUMENTS

1. The Listing Addendum and 2.) The Purchase Addendum

 1. SHORT SALE LISTING ADDENDUMS – Short Sales have a unique issue in that the lender may pursue the Seller after the close of escrow for the short fall of the payment.  This is a great potential liability for any listing salesperson.  That is why the Addendum To Listing Agreement-Short Sale  is required on all short sale listings.  This important addendum to the Listing Agreement warns the Seller of tax, legal and other consequences of the short sale.  Also Prudential®, Americana Group, REALTORS® has its own Seller Performing Short Sale Memorandum  for short sale sellers discussing even further legal consequences.  This important memo details that the Internal Revenue Service will consider debt forgiveness by the lender as income, and that there is no guarantee that a lender who accepts a short sale will not legally pursue a borrower for the difference between the amount owed and the amount paid.  This is uncharted territory and the Asset Managers have different approaches to debt forgiveness.  These important forms serve to educate your clients for all parties protections.

 2. SHORT SALE PURCHASE ADDENDUMS.  Short Sales have unique issues in presenting offers due to the lender having the ultimate control in which an offer will be accepted.  There is potential liability from disgruntled buyers.  That is why the SHORT Sale Addendum To Purchase Agreement  is useful for all listing sold short sales.  You must take great care in keeping all buyers adequately informed and this form sets the stage for your ability, as the listing salesperson, to best control the process.  Many complaints are being issued concerning how offers are being presented to the bank.  Always start with getting this Sale Addendum To Purchase Agreement agreed to by the Buyer and from there just, “keep it simple.”  Keep those buyers’ salespersons informed of the progress.  I suggest a weekly email to all interested parties representatives of any news or non-news you have from the lenders.

 OTHER TIPS – The Lucky 7 – Here are the top 7 issues of short sales  as presented in your upcoming office meetings.

 Demand to Close Escrow – New Form

 I am getting many questions/concerns of transactions where either the Seller or Buyer is failing to stay in touch with their Prudential, Americana Group, REALTORS® salesperson.  In one example, a short sale, the bank has finally approved the sale but the Buyer is no where to be found.  The Seller is concerned and wondering if the escrow can merely be canceled.  As I always do, I suggest that the Seller, ‘place in writing’ the fact they are ready to close and give the Buyer a deadline, rather than simply ‘cancelling.’  I have created the attached form “Demand To Close Escrow.” also in [ameriforms]  This form can be used by either a Buyer or Seller.  Let me know what you think.

This is a follow up to my February 27, 2009 “First Time Buyer $8,000 Tax”  Note my other linked blogs of Housing and Economic Recovery Act of 2008, Part I   and part II   and part III .

As a follow up o my February 2009 interview of Diane W Clough Cpa Ltd, 6130 W Elton Av, Las Vegas, NV, 1 (702) 870-0888; cloughcpa@att.net she reports the following:

Diane reminds us of the following in her most recent Report from July 2009:

The American Recovery and Reinvestment Act of 2009

On February 17, 2009 congressed passed the American Recovery and Reinvestment Act of 2009, authorizing approximately $787 billion in new spending and tax cuts to stimulate the economy.  How will the $787 billion legislation affect taxpayers?  Here are just a few of the highlights of the plan.

 First Time Homebuyer Credit

The American Recovery and Reinvestment Act of 2009 encourages first-time home buyers to purchase homes between January 1, 2009 through December 1, 2009 by giving them a refundable tax credit equal to 10 percent of the purchase price of their home, up to $8,000. Unlike the 2008 act, there is no 15 year repayment of the credit required.  A first time homebuyer is defined as any taxpayer who has not owned a home in the previous 3 years.  Additionally, the taxpayer can file an amended return for 2008 to claim the 2009 tax credit. It is advised to seek professional tax assistance to use the legislation favorably.

 Auto purchases
The sales tax paid on a new, not used, vehicle purchased in 2009 can be taken as an “above the line” deduction on 2009 taxes, meaning that taxpayers can claim the deduction even if they don’t itemize.  This applies to tax on the first $49,500 of the vehicle’s purchase price.  Income limitations apply. 

Plug-in electric vehicles qualify for a $2,500 tax credit for the first 200,000 vehicles sold.

 Tax Credits for Energy-Efficient Improvements

If you have been thinking about doing improvements to your home, consider going green.  Tax credits for energy efficient improvements to existing homes have been extended through 2010.  The amount of the current tax credit is 30 percent of the amount paid or incurred by the taxpayer for qualified energy efficient improvements made during the taxable year.  This tax credit is capped at $50 for any advanced air circulating fan, $150 for any qualified natural gas, propane, oil furnace or hot water boiler, and $300 for any item of energy-efficient building property such as insulation and storm windows and doors.

 COBRA health insurance assistance

Individuals who may be eligible for COBRA continuation coverage as a result of an involuntary termination of employment from September 1, 2008 through December 31, 2009 may receive 65 percent in financial assistance towards their health insurance premium payments for up to nine months, which leaves the individual paying only 35 percent of the health premium costs.  Former employers will pay the 65 percent of the premium costs and will be able to recover the financial assistance through quarterly payroll tax form 941.  To become eligible for COBRA and receive assistance:

1. The individual’s termination must be involuntary
2. The individual must not qualify for other group health coverage (i.e. spouse’s health plan, new employer health plan, or Medicare)
3. The employer health plan continues to exist
4. The employer reported 20 or more employees in the prior year.

 Making Work Pay

In lieu of a rebate check, such as taxpayers received in 2008, the new Making Work Pay provision lowers the amount of withholding in each paycheck.  The credit shows up as about an extra $10 per week in the paychecks of eligible individuals.  Most seniors and the disabled should receive a one-time $250 payment from social security arriving soon.

 College Credit

The tuition credit was raised to $2,500 a year for any year of college.  The change is only available in 2009 and 2010 and income limits do apply.  Taxpayers need to spend at least $4,000 to get the full credit.

Condominium Hotel Disclosure Statement NRS 116B – “Before You Purchase Property In A Condominium Hotel Did You Know . . .”

The 2007 Nevada Legislature passed the Condominium Hotel Act as a result of AB431 and in 2008 NRS116B was written specifically for Condominium Hotels and patterned after NRS116.  This new chapter governing condominium hotels contains provisions regarding:

(1) the creation, alteration and termination of condominium hotels;

(2) the management of condominium hotels;

(3) the protection of purchasers; and

(4) the administration and enforcement of the chapter.

Similar to the disclosure statement known as “Before you Purchase Property in a Common Interest Community Did you Know. . . ”  required with all Common Interest Communities in Nevada, Sellers of Units in Condominium Hotel have their own Information Statement as required by to NRS 116B.735 and NRS 116B.760.  It is located on Ameriforms here —>> Before You Purchase Property In A Condominium Hotel Did You Know . . .

The statement required by NRS 116B.735  and 116B.760  must be in substantially the form listed within NRS 616B.765.