RESERVING THE RIGHT TO RECOVER FROM SELLER AFTER THE SHORT SALE

Lotus Realty Group

Reservation of right to recover from seller after the short sale

In a large number of transactions, the lender may not require cash or a note from the seller; but the payoff demand letter “Term Sheet” may:

a) State that the lender will release the deed of trust on the property to allow the close of escrow, but the lender reserves its rights under state law to pursue the borrower for the amount lost by the lender on the short sale; or,

b) The lender can be silent on the issue as to whether the seller will be released from liability.

In these situations, the lender is willing to cancel the deed of trust on the property, but is not willing to cancel any rights the lender may still have on the note itself.

It is clear that if the note is a recourse note, the lender would have a right to attempt to recover from the borrower/seller after the short sale for the amount lost.

As far as non -recourse is concerned, unfortunately California law is not clear on this subject. It is not in the sellers best interest to assume, because there loan is a non-recourse loan, there is no liability to the lender at the close of escrow.

The lender's Term Sheet could change the characterization of the loan and give the lender the right to collect after the close of escrow. The lender will argue that by agreeing to the short sale and releasing the Deed of Trust there was a loan modification. which created a recourse loan instead of a non-recourse loan.

WHAT TO LOOK FOR

1. Make sure you review the Term sheet (Approval Letter) thoroughly.

2. Check to see if the lender is requiring cash to close or a note from the seller. Discuss the situation with your seller and see if they are willing to proceed.

3. Check to see if the Term Sheet clearly states that the seller will have no further obligation, or liability on the NOTE, or whether the lender is reserving it's rights to pursue the seller after the close of escrow for their loss.

4. IN EVERY SHORT SALE, you MUST advise your seller to take the "Term Sheet" to an attorney for review or advice. The seller’s attorney can try to negotiate this term out of the term sheet or possibly negotiate a settlement and full release for the seller. If neither is possible, the attorney can give proper legal advice as to seller’s options and risks before proceeding.

"Protect you and protect your client. "

If you have not already, please RSVP to our short sale seminar ( see attached flyer). Our key note speaker will be Real Estate attorney "David Bright".


LOTUS REALTY GROUP
PROFESSIONAL SHORT SALE NEGOTIATORS