Once your short-sale package is complete and properly submitted, your lender will take approximately 30-45 days to assign the offer to a negotiator. However, all time-periods and procedures are contingent on the individual lender involved. Most banks and their investors are very backed up with short-sale offers due to the current state of the economy and real estate market. It is crucial that you have an advocate to follow up with your lender to ensure your transaction goes as smoothly and quickly as possible.
Once the offer is accepted, the buyer closes on the house using a title company or closing agent to complete the deal. If the transaction was negotiated properly, after payment is submitted to the lender, you should get to walk away free and clear from the mortgage debt. A release from the debt is much harder to obtain when negotiating the short sale without an experienced, assertive attorney. Your lender will only act in its best interests and a foreclosure defense attorney is best qualified to argue the benefits that a release from a deficiency would have on both parties.
Another little-known factor that influences the lender’s decision is the existence of an insurance policy on your mortgage. If there is a policy in place, it would cover any of the lender’s loss from a short-sale. Even if you do not have PMI, it is possible that your lender took out a policy on its own, though the lender will not share this information with you.
Apart from any deficiency amount that could remain, another important issue often overlooked during the short-sale process is the imminent or pending foreclosure lawsuit. Short-sales take months to finalize and it is very likely that your lender will institute an action against you to foreclose on your home during this time, even if you are attempting diligently to work out a solution with the bank. The foreclosure lawsuit acts as a backup for the bank, in case a workout is not obtained.
Many people that do not hire an attorney to negotiate the short sale or for defense in a foreclosure lawsuit believe they can get the short sale approved before the lender’s attorney can foreclose on the home. This is simply WRONG and a very risky gamble. Delays in short-sale transactions occur all the time and a default judgment can be obtained in regard to the foreclosure action. If the short-sale falls through and no response was submitted to the court, the borrower waives any rights or defenses he/she may have had and may face a deficiency judgment.
An uncontested foreclosure action can be finalized in just a few months. However, if you hire a foreclosure defense attorney to defend the lawsuit, the process often takes much longer, which gives you more time to live in the home and work out an alternative to foreclosure with your lender.
In Florida, if you fail to respond to a foreclosure complaint within 20 days of the date of service, you are subject to entry of a default judgment against you. A deficiency judgment can still be sought in the court action, and if granted, would be collectible against the Defendant Borrower and his/her assets and wages for 20 years. An attorney can negotiate the short-sale with your lender, while at the same time appearing for and defending you in the foreclosure lawsuit.
In sum, there a many parties and procedures involved in a short sale, and costly mistakes often happen. If a mistake is made in the process, you have to start all over again. The costs of hiring an attorney are minuscule compared to the debt at hand and the potential for a foreclosure judgment. A foreclosure attorney can fight the foreclosure while working out a solution with your lender, so that you, the borrower, can "walk-away" legally and with the peace of mind that the transaction was completed correctly and pursuant to all applicable laws.
Sarah E. Peart, Esq.
Attorney at Law