SHORT SALES AND FORECLOSURES

Overview

Our attorneys at the Law Office of Howard L. Hibbard frequently consult with distressed property owners, real estate agents and brokers to facilitate and advise clients in executing a successful short sale or other foreclosure alternative. Our attorneys are affiliates with the San Mateo County Association of Realtors and provide semi-yearly classes to realtors on these real estate issues. The Law Office of Howard L. Hibbard offers compassionate and comprehensive legal services to distressed homeowners to facilitate short sale, deed in lieu of foreclosure or foreclosure proceedings. In addition, multiple government programs are also available to further assist homeowners facing foreclosure. To arrange a fee consultation with one of our attorneys to discuss short sale, foreclosure or alternatives thereto, please contact us.

General Information about Short Sales and Foreclosures

A Short Sale is sale agreement for real property wherein a lender agrees to accept less than the amount due and owing on the mortgage loan. A Short Sale may be negotiated with the holder of the first or second mortgage. It is important to remember that a Short Sale does not automatically release a borrower from an obligation to repay the deficiency (remaining balance on the loan not covered by the purchase amount). Foreclosures extinguish the homeowner’s rights when the homeowner has stopped making payments. The home will be sold at auction and the proceeds are applied to the mortgage debt. Foreclosures can be costly for lenders and have significant negative effects on the borrower’s credit rating. Alternative to foreclosure include Short Sales and Deeds in Lieu of Foreclosure (see below for discussion). Homeowners who find themselves in foreclosure should contact an attorney as soon as possible to discuss alternatives to foreclosure. Information about government sponsored foreclosure alternatives (HAFA) and other programs to assist distressed homeowners are available at makinghomeaffordable.gov. Visit the HAFA page for more information on Short Sales and alternatives.

Short Sales

Seller’s Issues

Two of the main issues for sellers in a Short Sale are: (1) whether the lender will require the seller to pay the deficiency, and (2) tax consequences for debt relief. In a Short Sale, the purchase price is less than the amount owning on the mortgage loan. The deficiency describes the monetary difference between the purchase price of the property and the current value of the mortgage loan. For tax purposes, debt relief is the deficiency that the lender does not require the seller to repay or simply, the amount of the debt that is forgiven. The seller will be taxed on the amount of debt forgiven as ordinary income for the year of the Short Sale. This tax may have significant financial consequences. For additional information regarding tax consequences for debt relief in a short sale, please read our blog. Some lenders will not provide debt relief for the outstanding loan balance. These lenders may require the seller to agree to pay the deficiency prior to allowing the Short Sale to be finalized.

Buyer’s Issues

For a buyer, the Short Sale follows the same pattern as a normal real estate purchase with possible complications or delays caused by the additional parties to the transaction specifically the lender and/or short sale facilitator. Multiple offers and additional documentation are required more often than not to obtain the lender’s approval. Buyers must remain cognizant of the fact that the lender must ultimately approve the purchase amount and terms of the sale or the sale will not go through.

Foreclosure Consulting

Judicial foreclosure occurs when a lender obtains a court judgment against the borrower and the property is sold through a court ordered sale and usually also results in a deficiency judgment against the borrower. Judicial foreclosures in California generally occur for non-owner occupied or commercial properties. Non-judicial foreclosure is more common in California for single family dwellings. When the borrower defaults on the loan, the lender posts a Notice of Default. If the borrower does not pay the amount due after the Notice of Default is posted, the lender sets a sale date and the property is sold at auction. Our office regularly consults with distressed homeowners in the foreclosure process and aids our clients with analyzing alternatives and the use of government programs. For additional information regarding tax consequences for debt relief in a foreclosure, please read our blog.

Foreclosure Alternatives

Homeowners who do not want a foreclosure on their credit report may have options other than a Short Sale depending on their individual circumstances. For example, some homeowners may be able to provide a Deed in Lieu of Foreclosure to the lender. A Deed in Lieu of Foreclosure transfers all interest in the property to the Lender, extinguishing the homeowner’s interest. Specific requirements must be met to execute a Deed in Lieu of Foreclosure and it is possible the lender may reject the transfer. Please contact us to determine this option is available to you.

Services We Provide

The Law Office of Howard L. Hibbard provides flexible solutions to our short sale and foreclosure clients including: (1) evaluation on a case-by-case basis of all available options and assessment of risks; (2) consultations, phone calls, client updates, (3) preparation of specifically tailored court documents and contracts, (4) legal research as necessary, and (5) aggressive representation at all negotiations, hearings and/or trials. The Law Office of Howard L. Hibbard is well versed in California short sale and foreclosure procedures. If you have questions regarding short sales or foreclosures, please contact us for a free consultation.