Ask Your Real Estate Agent These Questions Before Letting Them Handle Your Short Sale

Do you really need an Attorney/Realtor® to complete a short sale? Can a real estate agent adequately protect your interests in a complex transaction that involves numerous legal and tax issues? If you are considering signing up with a real estate agent to handle your short sale, please ask him or her the following questions:

Are There Serious Legal and Tax Issues Involved in a Short Sale?

• If a short sale results in the legal settlement of a breach of contract (i.e. the mortgage default), isn’t that a legal negotiation to settle the bank’s legal claims against me? Don’t I need an attorney to negotiate and review the settlement of those legal claims?

• Do you know if California Civil Code Section 2923.5 applies to my loans and provides leverage against the bank?

• Do you know whether California Code of Civil Procedure 580e protects me in a short sale?

• Does the Mortgage Forgiveness Debt Relief Act of 2007 apply to deficiencies or just to cancellation of debt taxation? Do you know the difference?

• Do you know whether Internal Revenue Code Section 108 applies to my situation so that I’m not taxed on the cancellation of debt resulting from the protections in California Code of Civil Procedure 580e?

• Are you legally allowed to analyze my potential exposure to deficiency liability, cancellation of debt taxation, and the risk of “dual tracking” resulting in foreclosure during the short sale process?

Are You Able To Analyze, Evaluate, Discuss and Negotiate My Legal Liabilities and Tax Exposure?

• Are non-attorney, real estate agents legally allowed to give legal and tax advice to homeowners?

• If you can’t give legal and tax advice (which no real estate agent is allowed to do), do you suggest I retain an attorney to review and analyze my situation before I sign anything with you?

• Do the ethical rules of the National Association of Realtors require you to refer me to an attorney in this situation? (Hint: See Article 13 of the Code of Ethics and Standards of Practice of the National Association of Realtors®).

• If you have an attorney “associated” with your brokerage (or if you have an attorney “negotiating” the short sale), doesn’t that attorney really represent you and your brokerage, and wouldn’t that attorney be legally and ethically barred from representing my interests and giving me direct legal advice and counsel? Am I really protected at all in that situation? Can you get that attorney on the phone now so that he or she can review my legal and tax situation and provide his or her legal advice for me? If not, don’t I need my own attorney? Will your attorney sign a legal engagement letter for my matter? If not, why not?

What Happens If the Bank Says “No” to the Short Sale and Wants To Pursue the Foreclosure Despite All Your Efforts?

• Do you have a plan if the bank says they simply won’t complete the short sale OR if a junior lien holder refuses to take the amounts being offered by the first lien holder?

• Do you have the ability to force the lender to stop the foreclosure process? How?

• As a non-attorney real estate agent, can you make legal threats to the bank or the servicer to bring leverage on my behalf?

• Can you sue the lender or secure a Temporary Restraining Order against the foreclosure action to buy more time or leverage to complete the short sale?

• Will the attorney that is “associated” with your brokerage (or the attorney that is negotiating the short sale) file litigation to stop a foreclosure? If so, will they do it for free? Do they represent my interests in protecting from deficiencies or do they protect your brokerage’s interest in the commissions?

How Does Bankruptcy Work?

• What’s the difference between Chapter 7 and Chapter 13?

• Should I file bankruptcy before or after a short sale? What are the tax implications of this decision? Could I be exposed to substantial tax liability if I complete the short sale prior to receiving a discharge of the debt?

• How do I extend the automatic stay during bankruptcy to get the most time in the property?

• Should you, as a real estate agent, be answering these questions or should I speak to an attorney? Isn’t it illegal for you to evaluate or discuss bankruptcy law?

Am I Obligated To Pay Other Real Estate Debts During the Short Sale?

• Should I continue to pay property taxes? What about the HOA dues? What about home owners insurance?
• Should I stop paying the second mortgage during the short sale?
• Are there legal and tax implications of these decisions?
• Are there legal issues that must be analyzed and evaluated in giving this advice?
• Should you, as a non-attorney real estate agent, be evaluating and discussing these legal and tax issues?
• Will your errors and omissions insurance cover you if you are wrong?