Issues with Short Sales

October 31, 2010
Author: Eric Townsend

Short sales are more prevalent than ever and many Americans are using them as an alternative to foreclosure. Negative equity home owners see a short sale as a way of limiting their liability. Unfortunately, this is a mistaken belief and acceptance of the short sale by the lenders does not necessarily mean all future litigation of the remaining debt is barred. In some circumstances not only can the lender go after the short seller after the short sale, but, depending on the circumstances, the judgment could be non-dischargeable through bankruptcy.

With a myriad of state and federal laws protecting home owners most residential short sales approved by lenders will result in no future liability, but will remain in several circumstances. Some of these liabilities are created by the lenders and are strictly unenforceable under California state law. Others liabilities were created at the time the short seller created the loan for the subject property. In these circumstances it is very important to understand when there are legitimate and illegitimate liabilities places on the short seller. Once the short seller understands the legal ramifications of completing a short sale only then should action be taken.

Without understanding the liabilities a short seller may be subject to, or to assume an illegitimate liability, it is easy to place a short seller in a position of liability that could have been mitigated with adequate legal advice. In some, but not all, cases lawyers can use simple strategies to help prevent the future liability of these short sellers.

A short sale done properly should operate as a settlement because in fact the short seller is helping the lender to procure the highest proceeds through a non-distressed sale. These actions are valuable to the lenders, and should be used for bargaining the removal of the short seller’s liability, but only a licensed attorney can explain and guide these short sellers to that result.

If you have any questions or comments regarding this blog, email us at blog@lauruslaw.com.

Who is to Blame, Fraud or the Market?

Author: Dustin Wetton

During the recent economic decline, many American’s lost much of their investments in the stock market. While loosing money can cause hardship, permanent damages, and harsh repercussions, by itself it does not open the door to sue somebody. After all, the main person to sue sometimes would be ourselves, as it was our decision, based upon our knowledge, to take a risk and gamble our money in a market that can be as unpredictable as earthquakes. So, why did you loose your money?

If it was based on bad luck, bad timing, or bad choice on your part, then that just comes with the territory. The capital market is know for its harsh ups and downs, and no matter how much the government may try and soften these punches, the market will continue its ocean-motion of ups and downs, and thus a good investor is a person who can see the dips and the inclines, and react smartly to them. Thus, if money was lost based on these issues, I’m sorry, but its you to blame for loosing your money, and thus, you can contact us or any other attorney to see if you have a valid suit against yourself for damages, and maybe even intentional infliction of emotional distress.

However, let’s say that you lost your money based on the faults of your financial broker, advisor, or fund manager. Were you a victim of fraud? These individuals are meant to give you financial advice, through a fiduciary duty owed to you, to help you invest your money based upon your investment profile, and given the recommendations that you knew of and knew the risk of. If they followed these steps, and gave you “bad” advice, then there is not much room for suing still. Yet there are some things that these individuals can be caught in the act and be held liable for, such as:

1) Breach of duty of care – This is a duty of a financial advisor to act with care in giving you financial advice. While this duty is protected by the business decisions exception, if your advisor gave you tips that were out of the realm of normal everyday business practices, then they can be held responsible. While this is often argued for, it is difficult to prove that the business exception rule does not apply.

2) Misrepresentation – This duty is to ensure that all information given to you is to the best of the advisors knowledge true. Thus, if they intentionally or negligently misrepresented facts to you, you bought onto these facts, and relied upon them in making your investment, and damages were caused upon you…then you have a good case against your advisor.

3) Going Against the Flow – This is not the legal term, because it mostly captures an array of suits that fall into it. If the broker did not follow contract terms, or did not listen to reports of unsuitability, or lack of diversification, then there are actions that can be brought against these individuals.

4) Breach of Loyalty – This is a duty to act in the best interest of the client in all decisions made for that client. This duty is breached when an advisor acts in their own interest, to better either themselves, or someone that they know. This is easily spotted with good evidence, and can cause many problems for advisors that went down this sour road.

These are all good actions that may apply to those of you who thought it wasn’t your fault. Also, remember that theft is always a good choice for legal action as well. If there are any signs of schemes, pyramids, or any other sketchy action taking place with your broker, be sure to seek legal help. As always though, while your advisor might have let you down, or you ran into bad luck, it’s always a good idea to be active and on top of your financial investments.

If you have any questions or comments regarding this blog, email us at blog@lauruslaw.com.

Industry of Short-Sales is About to Boom under SB 931

October 05, 2010
Author: Eric Townsend

Home owners walking away from their properties in foreclosure do so at their own risk. Only certain types of mortgages allow homeowners to walk away from their properties without recourse and now those same home owners will be protected when they instead go through the short-sale process.

Home loans, where the borrower also lives in the home as their primary residence, that were obtained to initially acquire property are protected under anti-deficiency statutes. Unfortunately, these loans do not represent the majority of borrowers who have home loans.

Over the last several years borrowers have refinanced their properties to obtain lower interest rates or to delay balloon payments coming due under an adjustable rate mortgage. When a loan is refinanced it is no longer classified as a loan used to acquire property and is left unprotected under the anti-deficiency statutes.

What does this mean? This means that should a homeowner choose to exit their investment (walk away from their home and home loan) in most cases they will be liable for the difference between what they owe and the amount the property brings in a foreclosure sale. This could leave homeowners that walk away in foreclosure with tens if not hundreds of thousands of dollars in debt. But for homeowners there is an alternative.

Governor Schwarzenegger recently signed SB 931 which provides relief to homeowners, but there is a cost. Homeowners that walk away must do so through a short-sale. This legislation adds a section (e) to Civ. Code sec. 580 and protects property owners – not including S or C corporations – from a deficiency judgment if their lenders agree to a short-sale. This means many homeowners that would have had to declare bankruptcy can now be relieved of their debt if they do the right thing and help the lender sell the property in a non-distressed short-sale.

If you have any questions or comments regarding this blog email us at blog@lauruslaw.com