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.