Short Sale Help: Lawyer v. Real Estate Agent?

In most situations, it's best to hire an attorney to assist you with a short sale.

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If you’re a struggling homeowner facing foreclosure and thinking about selling your home in a short sale, you’ll need to decide whether you should hire an attorney or a real estate agent to help you work out the deal. In many cases, you’ll want a lawyer's assistance so you can, for example, obtain legal advice about your personal liability after the short sale and make sure you fully understand the contents of the short sale documents.

Read on to learn more about why and when it’s probably best to hire an attorney to help you with a short sale.

Understanding Short Sales

In a short sale, the lender agrees to let you sell the property for less than what you owe on the loan and to accept the proceeds in exchange for releasing the mortgage lien.

Example. You owe $200,000 on your house and you find a buyer willing to purchase it for $150,000. In a short sale, the lender would agree to accept the $150,000 to release the mortgage, even though it is "short" of the total amount owed.

Short sales are one way for homeowners who are behind in mortgage payments to avoid a foreclosure. (Learn more about short sales to avoid foreclosure.)

When You Should Hire a Lawyer to Help You

The primary difference between lawyers and real estate agents when it comes to short sales is that a lawyer can not only negotiate the short sale, but also give you legal advice about the transaction. And, in many instances, the lawyer can represent you in a foreclosure action or help you file bankruptcy, if the short sale falls though. Real estate agents can’t give legal advice or provide you with legal representation.

Below are a few situations where you should consider hiring, or at least consulting with, an attorney.

You’re Concerned About a Deficiency Judgment

While the lender may agree to release its 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 a deficiency judgment.

What is a deficiency judgment? In a short sale, the difference between the sale price and the total mortgage debt is called a “deficiency.” Again, let’s say the total debt you owe on the first mortgage is $200,000, but the short sale price is $150,000. The deficiency is $50,000.

In most states, the lender can seek a personal judgment against you to recover the deficiency after the short sale (though a few states prohibit this under certain circumstances). Generally, once a deficiency judgment has been obtained, the lender may collect this amount (in our example, $50,000) from you by doing such things as garnishing wages or levying a bank account. (To learn more about deficiency judgments and to find the law in your state, see our Deficiency Judgments area.)

When you should hire an attorney. If you need legal advice about your risk of a deficiency judgment, you should seriously consider hiring a lawyer who can advise you about your particular situation.

Also, good lawyers have extensive skills in negotiation. In the likely event that you are facing a potential deficiency judgment, a lawyer can help:

If the lender does get a deficiency judgment against you, an attorney can potentially help you file bankruptcy to get rid of the judgment (and provide advice about whether this is a good idea). (Learn more in Nolo’s Bankruptcy area.)

You Need Help Understanding the Short Sale Agreement

Each short sale document has a legal interpretation and legal consequences. However, the terms may not be clear to someone who doesn't have a legal background. For example, sometimes homeowners think that the short sale approval letter (the contractual agreement from the lender) lets them off the hook for the deficiency, but in reality it doesn't.

You need to make sure that you understand every word of the agreement so that there aren’t any surprises after the closing. Non-attorneys can’t give a legal interpretation of the short sale documents. Only a competent attorney can advise you about the legal affect of the terms of the agreement.

You’re Worried the Lender Will Foreclose

If the short sale falls through, the lender may pursue a foreclosure against you. An attorney can review the foreclosure papers and advise you about your different options if this happens.

By hiring an attorney for the short sale process, you’ll have ready access to legal advice and counsel on what, if any, action is required if and when the foreclosure happens.

The Bottom Line

Even if you decide you don’t need to hire a lawyer to guide you through the entire short sale process, you might want to at least schedule a consultation with a qualified attorney who can answer any legal questions that you have about the transaction. (Learn more about how to find and hire an attorney in Nolo’s Foreclosure Lawyers & Other Foreclosure Help area.)

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