Release of Lien vs. Release of Lien AND LIABILITY on a Short Sale

11 Jan

Head scratcher

Understanding the differences can be a real head scratcher!

When attempting a short sale you MUST always make sure that your Real Estate professional understands the difference between the short sale lender releasing the lien & LIABILITY and when all they do is release the lien.  Not only should your real estate professional understand the difference they should also be working towards having your debt COMPLETELY discharged and working towards this goal from day one!

In the state of California if all the lender did was release the lien on the property they have up to 4 years to come after you for the balance owed and sue you for a deficiency judgement, and no one wants that nasty little surprise to come back to haunt you after you successfully complete a short sale without a release of liability…..

Lets talk about what the differences really are between releasing the lien and releasing the lien & LIABILITY…..

When you sell your property in a traditional sale (or equity sale) your old lender release their lien on your property when they have been paid back in full.  However, on a short sale, you are asking your lender, or lenders as the case may be, to release their lien on the property without a fully paying off your loan (short payoff).  When your lender agrees to a short payoff there remains a balance owed, in the amount of the difference between what the bank netted (offer price minus all closing costs and fees) and the full amount still owed on the loan.  Here in the Sacramento region that balance owed can be a huge amount considering that we’ve had some property values drop by as much as 55% in some areas of the Sacramento region.  When the lender agree to release the  liability it means that they are agreeing to forgive the balance owed on the debt.  If you do not want to be looking over your shoulder for the next 4 years (that’s the statute of limitations here in California) than making sure you have a qualified agent to represent you on a short sale is super important.  That agent needs to understand how and when to argue/push back on the lender to secure a release of liability for their client.

In California this is a much more important distinction when dealing with 2nd/3rd liens, because with the passing of SB 931 in California 1st llien holders MUST agree to release lien and liability when agreeing to a short sale.

Everyone’s situation is unique and if you would like to discuss your chances of being able to do a short sale and walk away without owing anyone anything please call  me at my office 916.585.3636 today… or tomorrow…..

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