By Larry Hotz, All Denver Real Estate Editor
Some Colorado Counties, like Adams and Weld, have suffered from massive foreclosures and short sales. In a short sale, some of the mortgage loan debt is excused by a lender just to sell a property at a lower price. This year, the Colorado Real Estate Commission is addressing these issues by requiring new forms and teaching Realtors how to use them in its Annual Update Class.
That class is taught by Oliver Franscona, Boulder Attorney and veteran continuing education instructor.
Boulder Real Estate Attorney Oliver Frascona Explains Foreclosures
He and I have been faculty members together at the Colorado Association of Realtors occasionally teaching both continuing education and the GRI Program. In this class, Oliver presented the new forms, explained when they were required and made suggestions how to use them.
The new Short Sale Addendum is required whenever a contract is accepted subject to an existing lender accepting a lower loan payoff than what is owed. This debt is forgiven by the lender. The form addresses critical issues in short sales that protect the Buyer. For example, if lender approval of the short sale is not obtained by a certain date, the contract automatically terminates. Of course, the Buyer can usually extend that date because most Sellers and Lenders are anxious to close the property. But, at least a Buyer isn’t “held hostage” to a lender’s short sale approval for months and months. That happens often.
The form also explains the short sale process to both Buyer and Seller. It points out that there may be a better option for a Seller than a short sale. It advises that legal and tax council should be consulted. While current law protects Sellers in some cases, there still could be tax liability for “forgiven debt”. Technically, that is the same as income.
The new Foreclosure Addendum is required to be used when a property is actually in the legal foreclosure process. So, it would not be used, for example, in a short sale because no foreclosure proceedings have yet occurred. The Foreclosure Addendum explains that the Seller has the right to cancel the sale within 3 days following signing a contract. It also provides that the Seller will receive no compensation before the end of the right to cancel.
Most interesting to me is that it states that the Seller speaks English as the principle language. This is because unscrupulous Buyers have taken advantage of primarily Spanish speaking Sellers and used a contract to deceive them about the terms of the sale.
Again, this is particularly true in Adams and Weld counties which have had a huge influx of legal and illegal immigrants from Mexico. Many were able to buy homes but have since been unable to make loan payments. Several lenders who tricked these folks into getting loans they couldn’t repay in the first place are being prosecuted. One was recently extricated from Mexico to face charges in Weld county. So, deception has been used to get Spanish speaking buyers into loans. Now, it is being used to take advantage during the foreclosure process.
So do you have a question about foreclosures or short sales? If so, just use the form below to contact us and we will answer your question. Be sure to give the general location of the property so we can have the right Foreclosure Expert answer your question.
It’s good to see that the Colorado real estate commission is actively educating real estate agents and being proactive in making sure short sales and foreclosures don’t end up worse than they already are. Thanks for the information and details about some of the things going on in Adams or Weld.
I totally agree with this guy. People need Realtor more then ever now. We are here to help not hurt you.
This guy makes a few good points about the short sale process. Here in Hawaii the state passed a law that is making it harder for agents to actually help sellers when they are facing a foreclosure. It was intended to protect the seller from being taken advantage when they were in a distressed situation, but is actually hurting them 🙁
Jeff in Hawaii´s last blog post..Obamas Second Coming to Lanikai Kailua Hawaii
great post, the short sale process in my market is constantly getting longer and more difficult. but at the same point the banks are taking a hit on some of these that they were not a while back
This is informative post.Thanks for sharing this interesting topic,I been learned a lot from your post.Now i know about Foreclosure.
-Audrey
Hi Everybody Kudos goes out to the mods and members on such a great forum!
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We entered into a contract on a short sale property in Montrose, CO on March 3,09. Two days later the transaction broker called to say they accepted a back up offer and we had 3 choices. 1. increase our offer 20k, to match theirs 2. withdraw our offer or 3. leave it on the table and they would submit our contract side by side with the other offer, 20k higher, to the bank. Is this legal? Are they suppose to stop taking offers once they sign the contract? Is the listing suppose to go into a pending state? I told them my attorney said it was illegal, now they won’t tell us if they submitted both offers, or when they submitted our contract. There was no short sale addendum attached to the contract.They say the bank told them they must present all offers, although ours is a contract not an offer.
THIS IS NOT LEGAL ADVISE. TALK TO YOU ATTORNEY. Montrose Blogger Answer: If this is a “short sale” the seller is the Owner and the REALTOR works for the Owner, not the bank who is deciding if they will accept less than the full debt to release the property. The Owner, can 1) accept any offer they wish (yours or others – subject to bank approval of the proposed short sale), or 2) send in all offers that they have now and others that the Owner gets later on to the bank for approval without accepting any offer (remember it is an offer not a contract), 3) sign any offer, including yours, and sub only that one to the bank or 4) accept one offer and let hte rest of htem be backups so that if the first one, the contract – accepted offer – fails the subsequent offers can be dealt with in sequence. I do not know of any law that requires a seller or lender to accept anything at all. IT is an offer until it is accepted.
Thank you for this service, I do hope you can answer my questions.
I have property in Arapahoe County (around Inverness)which was financed in part by a 1st Mortgage & another by a Home Eq. Line of Credit (both by Wells Fargo).
I can’t keep the property so it’s going to go through Short Sale or Foreclosure (auction is currently set for 8/12/09). My questions:
1. If the Short Sale is approved, will I still have to pay the balance left on the 1st Mortgage and/or the Home Equity Loan?
2. Same question as above but for a Foreclosure case.
Thank you and regards,
Rodolfo Zavaleta.
I think we need to short sell our house. It is a long story and if you want me to explain just ask.
We live in SE Colorado – outside of Las Animas. I need to know if the bank/mortgage company must agree or you must have permission to do a short sale??
I have talked to them extensively in an effort to keep our house but they want a rather large sum – which we don’t have – or it will go into foreclosure. I have not asked them about short selling yet as I wanted more info before I call them.
Thanks so much for your time.
Kim Mitcham
Hi Oliver:
Does the SS Addendum still need to be used with the new Foreclosure Contract?
Pamela
I am in the process of having my home in Littleton Co (un-incorporated Jeffco) go through a short sale. I am concerned that my lender will come back and require me to repay the remainder of the note. Can lenders legally make me pay the remainder of the note? If so would it be better to just let it foreclose?
Thank you
It is my experience that some lenders will require a personal note to be signed for the remaining balance in a short sale. i had one client who signed the note and immediately took bankruptcy. The best thing to do is to check with an attorney who knows his stuff like Oliver.
If a property goes to foreclosure, the lender can seek a deficiency judgment for any remaining unpaid balance. Plus, they can get actual costs including attorney fees added on. Again, your attorney is your best source the best course of action in your particular situation.
Hello,
I was wondering if under the Financial Stability Plan (bail-out) banks who accepted bail-out money were required to accept ‘reasonable’ offers from purchasers in short sales. If so, what constitutes a reasonable offer? And what remedy does a purchaser have if the reasonable offer isn’t accepted? The property is in Colorado. Thank you so much for your help!
After losing the short sale deal after wasting months and months of frustration and waiting. People absolutely should get a realtor. Bank are greedy and all of money. Let someone deal with them and get the deal done without sinking your entire life into a home sale.
Does a property have to have the NED filed before a short sale can be started. I started a contract on a home in Loveland and the owner missed only one payment. I submitted and offer and received the short sale addendum, does this stop the foreclosure process from starting for the owner? I was told that a home has to be in foreclosure before it can go to the bank for a short sale.
Good question, Tony.
A Notice of Election and Demand is the legal notice from the Public Trustee in a Colorado county to foreclose on the property. It is usually issued when a lender decides to foreclose. But, it doesn’t have to be from a lender. It can be the result of any lienholder foreclosing including an HOA or a mechanic (vendor).
What the lender does or doesn’t do about the request for a short sale does not change the lender’s rights under the deed of trust. So, there is no legal requirement that a property must have an NED to go to short sale. The lender, or any lienholder, can make any decision about a short sale and still pursue foreclosure.
Sometimes, one lender will approve a short sale and another lienholder will still foreclose. Any lienholder’s NED trumps any approved short sale.
I had a situation where the short sale was approved and the NED was still issued by the same lender. It was retracted before closing.
Because I am not an attorney, none of this is legal advice. Consult your attorney before relying on any of this. This has just been my experience with foreclosures.
In a short sale situation, the document must contain a statement that basically forgives the deficiency between the loan amount and the agreed to short sale. An attorney needs to make sure it is in the doc before the bank agrees to it. Therefore, there is no lingering debt hanging over ones head. Also, if a home owner is current on their mortgage do lenders look at them differently? Does one have to be late on payments before a short sale can take place?
That’s interesting regarding the stipulation that English must be the principal language of the seller. So many mortgage brokers targeted the non-English speaking communities for the “easy kill”, knowing that they were more susceptible to agreeing with whatever was presented to them.
I suppose it’s good to see that foreclosure help measures are being taken to protect homeowners, but sometimes regulation swings a little to far to the other side and ends up hurting instead of helping those they were trying to protect in the first place.
I had a short sale offer that was accepted about 5 months ago. Now the house went into foreclosure and i have to try to get it right when it comes out on the market. This seems so wrong in so many ways and a big waste of time. Is my chances horrible trying to get this house while its in foreclosure now?