Can I Negotiate a Short Sale Without a Lawyer?
It's usually best to hire an attorney to negotiate a short sale of your home with the bank.
While you can negotiate a short sale without an attorney, there are many reasons why it’s a good idea to hire one to represent you in the transaction. Lawyers are trained negotiators who can push the deal through, as well as help you avoid a deficiency judgment after the sale. Read on to learn more about when and why it’s often a good idea to hire an attorney to help you with a short sale.
How Short Sales Work
A short sale is when a homeowner sells his or her home and the sale price is less than the mortgage balance. The lender agrees to accept the proceeds from the sale in exchange for releasing the lien on the property even though the amount is “short” of paying off the debt.
Example. If you sell your home for $100,000, but you owe $150,000 to the lender (and the lender agrees to accept the $100,000 to release the mortgage), this is a short sale.
Completing a short sale is one way to avoid a foreclosure if you’ve fallen behind in your mortgage payments. (Learn more about short sales to avoid foreclosure.)
Why You Should Hire a Lawyer to Negotiate the Short Sale
Below are some reasons why you should consider hiring an attorney to help you with a short sale.
Lawyers Typically Have Good Negotiation Skills
The first task in getting a short sale is to convince your mortgage lender to release its mortgage lien from the home in exchange for receiving the proceeds from the sale. This typically isn’t easy since lenders don’t especially like short sales. They’d much rather get paid in full, but will reluctantly approve a short sale under certain circumstances.
A lawyer will evaluate all of the factors that the lender will consider in deciding whether to approve the short sale (including your hardship, your assets and income, and the appraised value of the home, for example) and present them in the best light possible to convince the lender to agree to the short sale.
In addition, all other creditors with a lien on the home must agree to the short sale so the negotiations must also include:
- any other mortgage lenders (for example, second-mortgage holders or HELOC lenders)
- homeowners associations, and
- judgment creditors, if there are any. (Learn more about judgment creditors and other types of lienholders in Nolo’s Property and Judgment Liens area.)
Good short sale lawyers are skilled negotiators and are experienced in successfully organizing the entire transaction, as well as handling all parties involved.
Lawyers Are Problem Solvers
Short sales take time to arrange and problems tend to arise, especially if there are multiple lienholders. For example, even after agreeing to the short sale, a second-mortgage holder might want more money than the first-mortgage lender is willing to give and hold up the closing. This can delay the short sale or even kill the deal in some cases. (Buyers often back out of short sales when there are delays.)
A good short sale attorney will make sure that all parties go through with the deal. The lawyer will take steps to resolve any conflicts that come up and minimize the number of snags in the transaction. (Learn more in Nolo’s article Common Short Sale Problems and Obstacles.)
Lawyers Can Give You Legal Advice About the Short Sale Documents
Short sale transactions require a lot of paperwork and most people don't fully understand the legal consequences of all of the documents. A lawyer can give you legal advice about the transaction.
For example, once the lender approves the short sale, you’ll get an approval letter that contains the terms of the agreement. A competent attorney can provide you with a legal interpretation of this agreement and advise you about its legal affect.
A Lawyer May Be Able to Reduce or Eliminate Your Liability for the Deficiency
Although the lender may agree to release its mortgage lien in exchange for the short sale proceeds, it might not release you from personal liability on the debt and could potentially come after you for the deficiency.
What is a deficiency? In a short sale, the difference between the sale price and the total mortgage debt is called a “deficiency.” As in the example above, say the total debt you owe on the first mortgage is $150,000, but the short sale price is $100,000. The deficiency is $50,000.
In some cases, the lender may expect you to bring the cash to the closing to cover part of the deficiency amount. A lawyer may be able to reduce this amount by negotiating with the lender.
Even if the lender doesn’t require you to bring cash to the closing, if your short sale agreement with the lender is not worded correctly,in most cases the lender may pursue you for a deficiency judgment after the sale. (A deficiency judgment is a personal judgment against you for the amount of the deficiency. Learn more about deficiency judgments after short sale.)
How to avoid a deficiency judgment. To avoid a deficiency judgment, the short sale agreement must expressly state that the lender waives its right to the deficiency. A lawyer can help negotiate a waiver of the deficiency (or settle the deficiency for a lesser amount) and ensure this is part of the written short sale agreement.
The Bottom Line
Whether you should hire a lawyer ultimately depends on your personal circumstances. In the end, even if you decide not to hire a lawyer to negotiate your short sale, it is recommended that you at least speak with a qualified attorney who can answer any questions you have on this topic. (Learn more about how to find and hire an attorney in Nolo’s Foreclosure Lawyers & Other Foreclosure Help area.)