In some states, short sale sellers routinely are responsible for deficiencies. These sellers would never utter the words what is a release of liability because they won't get it. But in California, there is really no excuse not to aim for a release of liability in a short sale. Yet, how many short sale agents do it? Better, how many short sale agents know they're supposed to do it?
There are many ways to get a release of liability on a short sale. The first is to figure out what a release of liability actually means. It does not mean the lender merely releases the mortgage from the property. That's a given. A lender can approve a short sale and not release the seller from liability. A lender can release its security in an instrument of encumbrance and issue a reconveyance and not release the seller from liability.
Just because the loan is not hard money does not mean the lender has waived deficiency rights. It's easy to confuse a non-recourse loan such as purchase money with a release of liability because those rules apply to foreclosures. They do not apply to short sales. A short sale can change everything. Banks have 4 years to haunt a short sale seller who did not receive a release of liability.
Sure, Civil Code 580e says a bank must release a short sale seller for a first mortgage. It does not address a second mortgage. And it's such a fresh addition to our California Civil Code that, far as I know, it hasn't been challenged. Ask yourself, do you want to go to court or do you want the release of liability in your hand?
Here are 3 things you need to know, especially if you've hired a Sacramento short sale agent who hasn't explained these things to you:
- Don't ever sign a short sale approval letter until you're completely satisfied you have obtained a release of liability because your lawyer has told you so and confirmed it.
- Short sale agents can't give you any advice about a release of liability because they are not lawyers. Don't ask your agent for legal advice.
- If your short sale letter does not address a release of liability or reserves the right to pursue you after the short sale, it is likely that you are not released from liability.
In this link are 8 or 9 examples of release of liability verbiage from actual short sale approval letters. See if you can figure out which letters release you and which don't.
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Certified HAFA Specialist
My Sacramento Real Estate Listings
Elizabeth Weintraub is an author, home buying columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout the four-county Sacramento area. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you. Broker-Associate at Lyon Real Estate. DRE License # 00697006.
The Short Sale Savior, by Elizabeth Weintraub, available at Amazon.com.
Lyon Real Estate is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan.
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The views expressed herein are Weintraub's personal views and do not reflect the views of Lyon Real Estate.
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