Salinas, CA Realtor: Are some attorneys to quick to advise in a short sale?

Are some attorneys to quick to advise in a short sale?

I am not an attorney and even though I do not give legal advice, I owe it to my clients to have a basic knowledge of the legal aspects of a short sale.   If  I am informed I can tell them what questions to ask their attorney.  

Even though I may disagree with some advice they give, I know I cannot argue against an attorney's advice because that would be giving legal advice.

 However, I often feel that some attorneys are too quick to advise clients to let the bank foreclose on recourse loans.  "Live there for free as long as you can and let the bank foreclose" seems to be very common advice.

 My latest short sale approval came from Country Wide.  There is a first and a second, both with Country Wide.  The first approval letter agreed to pay the second $3000.00.  The letter from the second accepted the $3000.00. Both letters had the standard "we are not giving up the right to pursue the deficiency" language.  As I do with every short sale, I told my client to take the letters to an attorney and see if proceeding with the short sale is still in his best interest.  I also told him that he needs to ask the attorney about the second's right to pursue a deficiency if the first forecloses.  It is my understanding that, in California, seconds can and are pursuing  deficiencies if they are not the ones who foreclosed. In my client's case at least the second would receive $3000.00 towards the balance owed if he proceeded with the short sale and given the cost of pursuing the deficiency, they probably would accept that and move on.

He took the letters to an attorney who told him that since the first and second were with the same lender, the second would not be able to pursue the deficiency. He told my client to ask me to ask the bank to remove the "right to pursue" language and if they don't he should let them foreclose.  I said I would ask but my experience tells me that Country Wide will not remove that language. (If they agreed to remove the language then I would have had the client ask the attorney if removing that language meant the lender was forgiving the debt and giving up the right to pursue..  My understanding is that it does not.)

As I was typing the email to the closer requesting that they remove the language I realized that I had never asked  Country Wide who owned the loans.  Country Wide may only be the servicer for the loans.   I called customer service and was told that there were, in fact, 2 investors.  The first is owned by Bank of New York and the second is owned by Wells Fargo.  I called my client and told him to go back to the attorney with this new information.  He did and the attorney told him that, in that case, the second could pursue the deficiency even if the first foreclosed.

 My concern is this: It seems to me that this attorney gave advice without knowing all the facts. Shouldn't the attorney have asked who owns the loans?  Shouldn't the attorney have known that unless the approval letter says they are forgiving the deficiency the removal of the "right to pursue" language means nothing.    My client chose to proceed with the short sale. I believe he made the right choice.  I did not ask my client what he paid the attorney but it hope it wasn't much.

Comment balloon 2 commentsTracey Martin • September 15 2009 02:06PM

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Tracey, I have run into the same situation here in Washington State.  You often have to wonder what the attorneys are thinking.  I have even had an attorney tell my clients to short sale the house and strip it of all the appliances and the the central air system.  By doing this, of course, it makes it much harder to sell the home.  He also advised them to then file for bancruptcy so they could have a clean slate to start from.  And in this situation, isn't this like stealing from the bank?   I know they are required to have more schooling then a Realtor, but this type of advise is insane!! 

Posted by Terry Meyer (Berkshire Hathaway HomeServices Sound Realtors) almost 10 years ago

I am an attorney but I won't give legal advice on my short sales so that my clients don't get confused about my role in the transaction.  In the past, I insisted that my clients get an attorney when handling their short sale, but to be honest some of the advice they got was just plain wrong and then I was left in the position of arguing against them.  Plus many bankruptcy attorneys are simply too lazy to work out short sales, so they just recommend bankruptcy and foreclosure because it is easier and more cookie cutter for them.  In other cases, the input the attorneys gave was very minimal so I stopped insisting that clientshire someone else.  Now I mererly recommend it.  Also, there isn't much money in it for the attorneys so not many are interested. 

Tni LeBlanc
tni@mintprop.com
www.MintProp.com

Posted by Tni LeBlanc, Realtor®, J.D., Tenacious Tni (805) 878-9879 (Mint Properties, Lic. #01871795) almost 10 years ago

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