Scottsdale and Phoenix, Arizona Real Estate Attorney- Short Sale Myths

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The Law Office of Joseph Velez

Real Estate & Business Law Attorney

7150 E. Camelback Rd., Suite 200

Scottsdale, Arizona 85251

480.710.5079

While on the surface a short sale may appear to be the ideal solution to a sinking mortgage, in reality there are far reaching consequences that must be examined.  Many people, often at the urging of realtors, pursue a short sale with this mindset (that you can wash your hands of your up-side-down mortgage with minimal repercussions) not realizing the full scope of the implications of their decision.  What follows are a few examples of common myths associated with short sales.


Short Sale Myths

  1. 1.The broker’s lawyer is on your side. (Myth) In house lawyers who draft short sale contracts do so with the brokerage’s best interest in mind, developing a contract offering them the most protection.  You need to speak to your attorney, who is working on your side.  Before signing any agreement it is important to have a real estate attorney review it with you in mind.


  1. 2.I am not financially responsible for the deficiency. (Myth) The short sale process usually involves a deficiency (when the mortgage is greater than the value of the home).  You need an experienced real estate attorney to review the liens, promissory notes and settlement agreement to determine if you will actually be released from financial liability.  Every lenders terms are different, thus, to be forewarned is to be forearmed.  If you have assets or a future to protect, you should consult with an experienced real estate attorney before you commence with your short sale, or at the very least have an attorney review all the documents before you sign them and close the transaction. 


  1. 3.Your realtor can act as your attorney. (BIG Myth- BIG Mistake!)  Realtors are not licensed or trained to review or negotiate contracts dealing with lien releases.  The difference between a solid release and an ambiguous one could cost thousands or even hundreds of thousands of dollars later.  Here is an example:  In a short sale the lender will generate a settlement agreement for the seller (you) to sign.  This settlement agreement is a legally binding contract full of terms describing your future responsibilities, obligations and liabilities to the lender.  Are you going to sign such a document not knowing what the terms mean or how they may affect you and your finances in the future?  A realtor cannot and should not be advising you regarding what the terms mean (they naturally want you to sign off on the deal because they earn a commission).  Because these are legal terms, which can significantly affect your rights and liabilities, you need someone experienced and licensed in real estate law to advise you. 

  1. 1.Don’t worry about turning you financial documentation over to the lender for a short sale approval (MYTH).  It’s customary for the bank which is being asked to approve a short sale to require your tax documentation and wage information. If upon review of these documents the lender determines that the income you stated when you originated the loan was grossly inflated, there could be allegations of mortgage fraud which may expose the seller/owner to criminal liability.  Please be aware that a multi-department mortgage fraud task force was recently created in Arizona to investigate and prosecute these and other forms of mortgage fraud.  This task force consists of the FBI, IRS, and several local police departments.  There should be a careful analysis of your documentation by a real estate attorney to weigh the potential risks associated with turning over such documentation to the lender.


Here is what is at stake:  if you do a short sale, you should require that the lender agree to relieve you from any deficiency.  The question then turns to whether the language in the lender’s settlement agreement actually means this- in other words, do the terms proposed by the lender actually mean that the lender is absolving the borrower from the deficiency or is the lender merely reserving the right to come after you at a later time?  A non-lawyer (such as a realtor) cannot render an accurate opinion regarding this, only an experienced real estate attorney can. 

Our law office represents clients throughout the Phoenix, Arizona area including the cities of Scottsdale, Maricopa, Mesa, Surprise, Paradise Valley, Avondale, Gilbert, Chandler, Glendale, Florence, New River, Fountain Hills, Peoria, Surprise, Queen Creek, Tempe, Sun City, Apache Junction, and Casa Grande. We serve the counties of Maricopa, Yavapai, Gila, Pinal, La Paz, Yuma, and Pima County.

Law Office Of

Joseph A. Velez

480.710.5079

Real Estate & Business Law Attorney

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