Phoenix and Scottsdale, Arizona - Advantages of Using an Attorney During the Short Sale

Law Office Of

Joseph A. Velez


Real Estate & Business Law Attorney

The Law Office of Joseph Velez

Commercial Real Estate & Business Law Attorney

Scottsdale Financial Center

7272 E. Indian School Rd., Suite 111

Scottsdale, Arizona 85251


are three decisions that can be made at the conclusion of a short sale: (i) the lender will surrender the right to come after you for any remaining balance unpaid by the short sale, (ii) the lender will reserve the right to come after you for any and all of the remaining balance or (iii) the lender will cap off what you owe and offer you a promissory note.  Each decision has a very distinct set of liabilities.  Depending on the decision, the short sale can either be protective of the lender or protective of the client.  A lawyer can negotiate and persuade the lender to choose terms that offer the most protection to the client.  For added protection have an attorney review all documents, contracts and terms (if any) of the short sale before signing anything and making a decision.  It is also recommended that you have the lender put any debt forgiveness agreements in writing.   

Financial Incentive vs. Fiduciary Duty: What an Attorney Can Help You With That a Realtor Cannot

Realtors (who have a financial incentive, i.e., their commission) are the most commonly used persons in the short sale process.  However, Realtors have no legal training, licensing or ability to address issues that often arise during the short sale process (e.g., mortgage fraud accusations, tax liabilities, deficiency negotiations, contract disputes, potential bankruptcy protection, etc.).  Having an attorney manage the case affords the client immediate access to a licensed attorney with a full range of legal expertise.  Confusion and misunderstanding can be avoided, as well as costly legal complications, if an experienced real estate attorney is involved in the short sale process from the beginning.  An attorney has the knowledge to explain the inherent risk the client faces from a short sale.  In contrast, brokers, agents and salespersons are not equipped to do this, nor can you ensure they will emphasize with these risks when their commission is on the line.

You need more than a Realtor/Broker on your team.  Indeed, even the Arizona Realtor Association’s (ARA) Short Sale Advisory recommends consulting with an Arizona real estate attorney to review the short sale process and paperwork.  )  According to the ARA there are several legal pitfalls that can occur during a short sale that require an attorney:

  1. There can be tax liabilities the borrower may face.  A lot of real estate agents are telling clients that there are no tax consequences, when in fact there may be.  The tax rules vary depending on type of property, whether your situation involves purchase money, and the type of loan.  The unpaid portion of the deficiency may be seen as taxable income to the IRS.

  1. Misrepresenting how secondary debt is treated.  One of the major complexities with the short sale solution lies in the second mortgage, where it might not always be so easy to convince the holder of a 2nd mortgage to waive the deficiency.  Real estate practitioners might mistakenly tell sellers that all the house debt is forgiven once the primary lender approves a short sale.  But that might not be.  In many cases second loans are recourse, so sellers can be caught by surprise when a collection agency contacts them a year later seeking payment of the debt.  

Navigating a short sale is much easier with the assistance of an Arizona real estate attorney, and an attorney has a fiduciary responsibility to tell you the exact liabilities and responsibilities you face.  Some real estate agents may claim that you don’t need an attorney watching out for your interests during a short sale.  Be wary of a real estate agent that makes this claim.  Some Realtors advise based on their best interests (commissions) and not the clients.

Advantages of Working with an Attorney - The Services a Phoenix, Arizona Short Sale Attorney Will Offer

Our office will cover the following in the short sale consultation:

  1. An in depth review of the short sale process. We will review the short sale process, both broadly and specifically, as it relates to your situation. 

  2. Asset protection analysis and counsel.  If the bank reserves the right to hold you liable for a deficiency, your assets (i.e., other properties, bank accounts, retirement accounts, etc.) may not be safe.  It is not uncommon for lenders to go after money that sellers have in bank accounts before they approve a short sale request.  They’ll sometimes seek that the real estate practitioner to get a signed promissory note from the seller for funds from their bank account as a condition of the sale.  Be aware of the true meaning and implications of what you are signing before doing so.

  3. Bankruptcy analysis, advise and counsel. Another advantage of working with Arizona real estate attorney Joseph A. Velez is his experience with bankruptcies.  A Bankruptcy analysis is always a part of the service because people going through a short sale often have other economic challenges that might be resolved by a bankruptcy.  It may be in the borrowers best interest to do a bankruptcy or foreclosure instead of risking the chance of having to pay a deficiency to the lender.

  4. Review submission of short sale documents (advise and counsel on hardship letter).  We will advise clients in writing a hardship letter which will provide vital proof to the lender that the borrower lacks the resources to pay the mortgage (if this is the case). 

  5. Beware of committing mortgage fraud: Fannie Mae and Freddie Mac have a fraud investigation unit that focuses on short sale fraud and people not fully disclosing material information of the short sale. This new illegal activity is referred to as short sale payoff fraud and is defined as “any misrepresentation or deliberate omission of facts that would induce a lender, investor or insurer to agree to the terms of a short sale payoff that it would not have approved had all the facts been known.”  We work with clients during the short sale process to ensure that they are aware of such risks and liability.

  6. Review of the bank short sale approval terms (if any).  We will negotiate for protective terms for our clients and work to minimize their legal exposure to a deficiency.  Phoenix short sale attorney, Joseph A. Velez may also be able to re-negotiate terms with your lender after the completion of the short sale.

About Our Firm

Our goal is to protect your assets and provide peace of mind for those who are facing a short sale.  We help you take the necessary steps to not only protect the property in foreclosure but also protect your other assets including real estate and bank accounts.  We review your situation and all documentation carefully to determine the best course of action to take.  The lenders and loan servicer(s) have attorneys on their side, your too should have an attorney on your side protecting your interests. 

Many clients will seek assistance for the short sale process from all the wrong places not realizing the crippling effects of a poorly executed short sale.  A Poorly executed short sale can have devastating effects for many years into the future.  An experienced attorney playing a supportive role can minimize or eliminate these risks and disputes over misinterpretation of the language contained in the contract.  At The Law Office of Joseph A. Velez, in Scottsdale, Arizona, we help clients safely negotiate and complete their short sale.  Because of Attorney Velez’s extensive experience with foreclosures, bankruptcies, contract matters, and other real estate law issues, our law firm is well positioned to guide people through this process.  We honestly care about you and are passionate about defending your legal rights and protecting your assets.  Call 480.710.5079 to schedule a consultation today.  

Arizona Short Sale - The Basics

Short sales have exploded in popularity recently as homeowners struggle to pay their “under-water” mortgages.  In essence, short sales are meant to allow borrowers to sell a home for less than the mortgage amount, walk away and avoid the scar of a credit killing foreclosure.  It is not that simple though.  Lenders have been inserting language into the short sale contract that allows them to sue the borrower for any “deficiency,” or the amount lost by the bank, for selling the home for less than the mortgage amount. Because of this short sales are subjecting borrowers to collection actions and court judgments that can run into the hundreds of thousands of dollars.  A short sale may not end a homeowner’s problems (i.e., deficiency) and can include risks that result in liability even after the conclusion of the sale.  However, if done correctly, a short sale can relieve the borrower of a failing mortgage with ample protection and minimal financial liability.  To ensure this, it is important to work with an experienced real estate professional during the foreclosure process.

Even if a lender agrees to a short sale they may not agree to forgive the debt entirely and may require you to pay the difference as a personal obligation.  In other words, a lender may accept the short sale purchase price to “release the lien” on the property but may not agree to accept the purchase price as the “full and final settlement of the debt” on the property.  There

Our law office represents clients throughout the Phoenix, Arizona area including the cities of Scottsdale, Maricopa, Mesa, Surprise, Paradise Valley, Avondale, Gilbert, Chandler, Glendale, Florence, New River, Fountain Hills, Peoria, Surprise, Queen Creek, Tempe, Sun City, Apache Junction, and Casa Grande. We serve the counties of Maricopa, Yavapai, Gila, Pinal, La Paz, Yuma, and Pima County.

DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.

One hour initial office consultation fee is $295 for the matters discussed above.