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Short Sale

Short Sales, Deficiency Judgements and the “Missing Paperwork Strategy”

Earlier today I received the following email that was sent to my client from a realtor who listed his home for sale, then attempted to negotiate a short sale transaction after the client was served with the foreclosure complaint:

“I am concerned about the real viability of you truly being able to keep the home or if it’s a shot in the dark with the “missing paperwork strategy” and whether this route is the soundest legal advice.  During the battle (which could take time), it is likely your credit will continue to be diminished.  You should also speak to your accountant, you could possibly avoid bankruptcy in the future and be able to bounce back more quickly from a short sale without the threat of a deficiency judgment.  Discuss the phantom income with your accountant and whether you will be liable for taxes if you can prove insolvency.”

The realtor in question had negotiated a short sale transaction, but this transaction required my client to sign a promissory note agreeing to pay a significant sum of money back to the lender.   Fortunately, my client had the good sense to retain me prior to consummating the sale which would have subjected him and his wife to real liability based on the promissory note he signed.

In the email, the agent refers to the action I am taking in this client’s case as a “missing paperwork strategy” then questions whether this strategy is the soundest legal advice.   One of the most compelling legal issues involved in many foreclosure cases is the fact that in a great majority of the cases, the Plaintiff who files the case cannot prove that it has any legal basis to file the case against the Defendant in the first place, let alone present the evidence that Plaintiff needs to “win” the case they have filed and obtain the home back through foreclosure.

When local banks wrote mortgages then sued to foreclose, it was very clear they owned the mortgage because their name appears on the documents and they lent the money in the first place.   Most of the mortgages that are being foreclosed on now were sold one or more times to a variety of trusts, corporations, and legal entities (and a few illegal entities for that matter).   Many of these entites have been legally dissolved are bankrupt or have simple disappeared and are no longer doing business.   Often, when the loans were bought and sold, the sellers failed to execute the documents that were necessary to show the loan in fact was sold to a third party and if the document (called an “Assignment of Mortgage”) was executed by the seller, that document was almost never recorded with the Clerk of Court as state law requires.   The problem for the lender trying to foreclose is that if they cannot produce the original note or a properly executed assignment of mortgage, they will not take the home back in foreclosure.

Even if the Plaintiff produces the original note and a perfectly executed assignment of mortgage, they still likely will not win because the Plaintiff can almost never produce a proper accounting which shows payments made and how they were credited.   The technical rules of evidence make it very difficult for any Plaintiff to prove the amount owed on a given loan to the degree of certainty the court requires to enter a judgment.

The “missing paperwork strategy” that the above-quoted realor denigrates is nothing more than good legal practice requiring a Plaintiff to properly present their case.   When the Plaintiff cannot fulfill the basic requirments of the law, they lose and the good guys win!


2 Comments

  • jamie says:

    I’m not exactly sure to whom you are referring as the good guys. I currently have a situation in my neighborhood where a house had been foreclosed upon and sat vacant for several months, only to recently have someone move in and quit claim deed the property to himself. He states that since there is no note, the property doesn’t belong to the bank, and therefore is his. This doesn’t sound like a good guy to me.

    • The guy is a crack pot and is trespassing. He’s committing a crime and should be gone after…but these banks are doing this all over the place…in their rush to make obscene profits they screwed up a system that worked well for hundreds of years….and now you and I (the good guys) are forced to bail them out in the form of federal tax dollars…..where is this property you’re talking about located?

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