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Many homeowners and agents alike as what the odds are they will be required to pay a deficiency balance after a short sale.  Many bank release documents will not specificially state whether the short sale will be in full satisfaction of the debt.

We’ve noticed a gradual change from a willingness to include language forgiving the debt to some even stating specifically that they are leaving open the possibility of seeking the deficiency balance, even though in fact they may not likely pursue it, unless of course, the debt is far in excess of the fair market value and the homeowner may either have assets or can be rehabilitated.

Pursuing the deficiency balance

The decision whether to pursue a deficiency balance rests with the secondary market investor (SMI) unless the servicing agreement permits the servicing lender to do so.

Then, the policy decision may be made from a public relations and political analysis.  With the federal government so actively involved in the explosion of foreclosures, bailout programs, and attempts to reduce foreclosures, there is presently negative pressure on lenders to not pursue deficiency balances.  This pressure will help determine whether to go after only the most egregious cases or to expand the criteria.

Finally, the decision for pursue a deficiency balance involves the a nexus between the capacity of their legal, bankruptcy, and collections departments and the facts of each case.  A certain predictable percentage of their customers will file bankruptcies, so these entities will determine how many and which customers to pursue for the deficiency.

The borrowers likely to be pursued are those who the lender sees may become solvent in a reasonable length of time.  If the servicing lender owns the note, they may be more aggressive.  A medical doctor in his 40’s, with a good income with a temporary financial trouble due to loss of business from the clinic mismanagement will likely recover financially after his change of clinic.  Particlurly if a deficiency is large, the greater the likelihood they will pursue the borrower.

How to know when the borrower is in the clear

Each state has laws called “Statutes of Limitations” or “Limitations on Actions”.  These are laws that place a time limit after which the creditor can no longer sue a debtor for a debt, which can range from 2 years to 10 20 years.  However, the borrower will seldom need to wait this long.  Even the IRS does not collect tax debts after 10 years, with exceptions.

If the lender required a Promissory Note for part of the deficiency, it is highly unlikely that they will seek more.  Indeed, if they do, the lender may face some legal trouble, for which they are fully aware.

If a lender is going to seek a deficiency, it most likely will occur within the first year.  Each year, in January, the lenders must issue their 1099s.  A 1099A or 1099C will be the form they use to report to the IRS the amount that has been forgiven in a short sale or foreclosure.  So, if the borrowers receive a 1099 for the deficiency balance, the lender may be “estopped” thereafter from pursuing the debtors.  The lender receives a tax benefit from the forgiveness, and the borrower may incur a taxable event as a result, so the lender may be estopped from further action.

This discussion is only a guide, and there are differences between specific lenders and SMIs.  It is important to encourage your sellers to consult with a competitent attorney in their local jurisdiction.

Please note: I have endeavored to provide general guidelines.  Because there are a lot of SMIs, and even greater numbers of servicing lenders, many thousands of varying loan products, and often different procedures in different states or regions, many of you may find cases that deviate from the above discussion.  Please keep this in mind.

Best wishes to you all,

Ken Lawson JD

TheLawsonGroup Mediation Services

Training, Coaching, and Mediation of short sales

I often find agents mistaken in their beliefs why short sales are not approved, or do not otherwise close. While I certainly applaud successful short sale agents, there is widespread misunderstanding and misinformation about this topic.

As an attorney who has not only sold real estate (well, for a year and a half, that is), and has represented and dealt with servicing lenders and secondary market investors (SMI) over the last 20 years, I have a unique understanding of these entities and relationship with them. A number of those institutions have managers and executives who are friends of mine, and we have on numerous occasions discussed the issues causing short sales to not be approved.

So, here are the top reasons that a short sale does not close as I experience them with the agents who work with our firm and confirmed by my contacts in the mortgage lender/SMI industry.

6. Not submitting multiple offers. I’m sorry, but I must respectively disagree with those who hold contrary opinion.  My contacts tell me that providing multiple offers have indeed helped them to see that the agent is doing all they can do to get the home sold. When there is a borderline case, the multiple offers can make the difference.  However, the servicing lenders generally do not like them.  There is also a side benefit: if the selected buyer walks, there is another purchase contract that can carry the deal to close.  However, in some areas, multiple offers are not permitted.  Some say they are not legal.  Wrong!  They are legal, however, both the listing and the purchase contracts must be drafted properly.

5. Not submitting a proposal.  Many short sale instructors merely teach to send in a complete short sale package. It is true that you must have complete documentation, but it is important to draft a full proposal, as well. Organizing your request to approve a short sale has often made the difference between success and failure with the agents who work with our firm. The proposal should contain specific features and I outline them at length in both of our publications. My SMI contacts state that properly drafted proposals are given very careful consideration and they have approved our format.

4. Causing the proposal to be tanked. Many agents still think that the servicing lender is the one who approves the short sale and that they can actually negotiate with that lender’s “negotiator”.   However, most loan notes are actually owned by the SMI and either they, or an MI insurance carrier if they have paid off a claim, approve or reject the short sale. The servicing contracts provide limited authority to servicers and it is very common for servicer employees to cause the proposal to be tanked if they can get away with it. Any excuse may trigger this behavior: incomplete or mistakes in drafting proposals, getting them angry, etc, can cause your proposal to be tanked.

3. Not communicating adequately with parties. Buyers are patient…to a point. Same with cooperating agents. We provide weekly updates to all parties, more often when things happen. Buyers must be part of the process and be motivated to hang in there when approval takes a long time.

2. Not meeting the definition of “hardship”. Like a criminal case wherein each element of the criminal statute must be proved, in short sale cases the hardship letter and financial documents must prove each element necessary for a secondary market investor to render a finding of “hardship”, and approve the short sale. The hardship metter must contain certain elements, without which, the case will be rejected.

1. The most important reason that a short sale is not approved is not meeting the net to lender minimum threshold percentage of the fair market value. In the past, secondary market investors utilized the short sale versus REO comparison analysis to approve or reject a short sale. However, almost all SMIs have changed over to the minimum threshold analysis. That analysis ignores the amount of the debt and focuses on proof of the current fair market value of the property. For different SMIs and even different products, there is a set minimum threshold percentage of the fair market value that must be received in order for the proposal to be approved.  Many agents eroneously believe they are still using the old comparison analysis.

So, the bottom line is this: if a proposal meets the definition of hardship, that hardship is supported by the financial documents, you do nothing to cause the servicing lender to tank the proposal, and the offer meets the net to lender minimum threshold percentage of the fair market value, the short sale will be approved and if a qualified buyer remains, the transaction will close.

Best wishes,

Ken Lawson, JD

TheLawsonGroup Mediation Services

There is circulating a popular legal concept for the homeowner to require the lender to produce the original promissory note in the event of impending foreclosure.   The lender who is the holder in due course (this is legal speak for the entity that actually owns the Promissory Note) must prove that the debt is due when the servicing lender forecloses on the property.

To produce the note is sometimes very difficult because the note may be in the possession of the servicing lender, the secondary market investor, or someother entity as the note passes to various entities. With all of the mergers, bank failures, and takeovers over the last several months, many records have been lost.

To prove that the foreclosing entity has a rightful claim merely reequires the “keeper of the books and records” to testify that the debt is owed and they have the legal right to collect.

In order to offset the testimony of the keeper of the books and records, the homeowners would need to produce evidence that the entity does not know for certain that the note has not been transferred, or that the debt is not owed.

Obtaining proof is accomplished through discovery actions where you force the lender to produce the records that prove they have the legal right to collect or foreclose.  You will need a competent attorney to do this properly. If you can prove that the lender cannot prove they have the legal right to collect the debt, then you can win.

In most cases, either the note will ultimately be produced or adequate testimony will prove the debt. However, this procedure will lengthen the time required to foreclose, providing additional time to get the short sale approved, even if the debt cannot be set aside. Remember, the homeowner is not saying they do not owe the debt; only that they may not owe the debt to this particular lender. With so many bank closures, mergers, and takeovers, that may be a fact.

When I represented consumers, it was not uncommon to find clients who experienced a foreclosure by the servicing lender, only to result in the actual holder of the note later suing them for the entire debt.

Technically, representing oneself can be done, but not well advised. Most short sale homeowners do not have the funds to take on a case using this strategy, and in most cases, the proof of debt will be presented with only a short delay in the case.

In judicial states, an answer to the original court Complaint or Petition must be filed within the time frame permitted by your state law. Then the discovery process would begin. It is possible to file a simple letter answer, which is often accepted by judges and deemed to be a legal Answer to the Complaint or Petition out of an abundance of caution. Then even at trial, this strategy could be implemented. However, it is best to let a good attorney handle it.

In non-judicial states, a lawsuit must be filed by the homeowners before the date of the trustee sale. Again, it is much more likely to be successful if a lawyer does it. The Complaint or Petition must assert a denial of the debt to the defendant. In some jurisdictions it is enough to state that plaitniffs are uncertain that the debt is owed to this defendant, while in other jurisdictions the plaintiffs must allege that they have reason to believe that they do not owe the debt to defendant. Again, taking these actions are costly if the homeowners hire an attorney.  The Complaint or Petition would ask the court to require the lender to produce the note.

In any case, the original loan documents should be taken to the attorney for a forensic review because there is a good chance that there may also be TILA or RESPA violations as well. If the violations are serious enough, some attorneys may take the case on a fee contingency if there is a likelihood of a substantial award.

Generally, this “produce the note” strategy is seldom effective in practice, except for gaining time for the short sale process.  This objective may well justify this strategy.

Ken Lawson, JD

TheLawsonGroup Mediation Services

There is a new Truth In Lending law which took affect this month (August, 2009) that will likely cause additional time needed to close in normal closings, but also in many short sale transactions.

Under this law, there is a 3 day delivery time period plus the 3 day right of recission period to review the Truth In Lending documents before the lender can charge them any fees, such as the appraisal. This means the buyer’s lender can get started preparing for closing on day 7.  It also means then that a 30 day escrow will be difficult and may likely need an extension, which is increasingly more difficult now in short sales.

But that is not all. Under the new Truth In Lending Act , if the APR is off by more than 1/8 %, they need to re-disclose at the moment you think they’re going to sign the loan docs, requiring another 7 day period at the end of the period. That may be the courier fee, etc. So, this new law which was passed with the intent to protect the buyers, has added at least 7, and often 14 days to the transaction.

So, closing in 14 days may be very difficult; rather, you should set your time for closing in the contract for 45 to 60 days. Check with your mortgage broker for guidance.  This will be especially difficult with short sales because lenders want to close quickly so they will get the net to lender amount on the HUD-1.

Be careful about setting the day for closing. If your offer requires closing within 30 days, and if the seller will not agree to an extension later, you could be looking at those $150 or so per day per diems you agreed to in the contract. With the current changes in the Truth In Lending Act, we again have government making life harder for short sale agents, as usual.

Best wishes to you all.

Ken Lawson, JD

TheLawsonGroup Mediation Services

I just received a featured blog that posed the theory that there is a difference between bluffing and good negotiation.

That statement right there indicates the author does not understand the principles, concepts, and techniques of negotiation. I have about 14 years of law enforcement experience. When I obtained my doctorate in law and went to work for a law firm, I thought, with all of that experience, that I knew almost all there was about good negotiating. After all, I arrogantly believed, I developed quite a lot of skill in talking people out of weapons, out of fighting, and into handcuffs.

However, my wise mentors insisted that I obtain proper training conferences in negotiation. I also attended, and obtained law enforcement certification in hostage negotiation. Then I obtained my training and certification in both general civil mediation and family mediation, with advanced certification in domestic violence mediation.

The result? Besides getting a good dose in humility, as good as I originally believed my skills were, I discovered that there are research-proven techniques in both mediating and negotiating. Those techniques are counter-intuitive. That means that using good common sense and with a lot of experience, a person will not gain those skills.

Because they are counter-intuitive, training is required. Then that training must be internalized. Once internalized, the concepts must be practiced and honed into skills. Trained attorney mediators utilize the skills common to both mediation and negotiation. If they use their training, they are very effective. The problem is that I have been seeing mediators turn away from their training and return to the old system of pressuring for compromise. Why? Because it is faster than the proper methods.

The U.S. government gave a grant to the Harvard Negotiation Project to study conflict and develop systems, methods, and techniques for resolving conflict or negotiating toward specific goals and objectives. The result was a new system that the State Department used to resolve the Israeli-Egyption war. That system since then has been promulgated in negotiation and mediation training and refined.

These concepts are utilized by law firms across the nation to negotiate case, and by billion dollar corporation to negotiate contracts. People who have not received the training naturally think they can become great negotiators by out-thinking their opponents, by having something to hold over their opponent, or just by being more aggressive. Others think that just by being sweet and courteous they can use their intellect to sweet-talk people into succumbing to their personality and charm.

However, when proper training is received, they suddenly realize there is a new level of thinking, a paradigm shift to a new reality where many more possibilities open to them in negotiating. I presented the concepts and skills of negotiation in my book, Short Sales & Loan Modifications: A Practical Guide For Real Estate Agents and Investors. It is too comprehensive to teach in a blog.

There are many good training programs available and any formal training you receive in those methods and techniques will increase your negotiating ability. I encourage you before setting yourself up as a good negotiator, to obtain formal training (my book or elsewhere). Some people do not know what they don’t know, so getting educated is the best plan before getting too confident in their skills.

Most of you reading this blog have good success in negotiating, and some of you have been well-trained. I would encourage any of you who want to improve your negotiating skills to obtain that training, available in my book as well as others.

I wish you all great success in your negotiations and in businesses.

Ken Lawson, JD

TheLawsonGroup Mediation Services

I keep reading about the huge statics of homeowners, in the millions, who go through foreclosure, but in the thousands of short sales. There is a very large disconnect happening between the marketing activities of Realtors and the listings they obtain compared to the huge numbers of foreclosures. The marketing activities are just not reaching distressed homeowners in ways that cause them to respond.

A short sale is far, far better than a foreclosure or deed in lieu. A short sale connected to a bankruptcy even is much better than foreclosure or DIL. So, why is it so difficult to get the short sale listings?

First, my disclaimer. I am a lawyer by profession and only sold real estate for less than a year while my wife was in her residency in Indiana. I do not have that high “I” on the DISC profile agents are so verbal about. I am not a sales person. I do not have a sales personality and do not win people over with my personality.

However, and again I say, however, in my 20 years of practicing law I did start and build a successful law firm with a crowded waiting room. I may not have a sales personality, but I was able to draw and serve people in various forms of distress.

I do not sell, but I can solve problems. By focusing on solving problems, I developed a referral network that drew people to me who had problems that needed to be resolved. When, in selling real estate, I stopped selling and stopped holding open houses (where they would run the other way when they met me, lol), I started finding people who needed help and focused on solving their problem of selling or buying a home. It is a different mindset, a different method of locating clients and customers, and a different approach to communicating with them.

People in distress, I discovered in my law practice and when selling real estate, often become emotional frozen, or at least emotionally in slow motion. I used various techniques in my law practice to get clients to act before it was too late, but at least they were coming in to the office. When marketing to distressed homeowners, getting them to respond to the marketing is even more difficult. They may be getting many marketing pieces, but they are likely not responding to any of them.

So, how do you get them to respond? Some of you have very refined methods of marketing to distressed homeowners, but others may be meeting with various levels of ineffectiveness. However, even those of you who are successful are getting only a small fraction of the potential market. The proof is in the vast numbers of foreclosures versus short sales.

I would recommend first that you understand the homeowner in financial trouble. I wrote a chapter in my book about them to help you understand how to reach them. It is not difficult; rather, it is just different than marketing for normal listings. You have to focus on solving the problem, not selling your services. You have to help them visualize the future and provide them with something that they desire more than the fear of the present.

To move people emotionally frozen in inaction requires you, the agent, to stop selling and help them solve a problem. They must see that you are not after only the listing, but that you have a variety of tools in your toolbox to help them. You see, they expect a real estate agent only to want to sell the house and they stereotype that they cannot sell it, not understanding the concept of a short sale. They expect a lawyer to want them to file bankrutpcy. They expect an investor to only be wanting to rip them off. They have nowhere to turn, in their minds, because their stereotypical thinking limits the possibilities that professionals provide.

In my law practice, I advertised “Debt relief without bankruptcy” to break through that stereotypical thinking, and that spurred many people to action, to set an appointment to find out what options were available. Most people do not really understand bankruptcy, but I did indeed offer an alternative to it. So, too, you must find a way to trigger action in the distressed homeowner. I recommend reading that chapter in my book Short Sales & Loan Modifications: A Practical Guide For Real Estate Agents and Investors.

For those of you who are comfortable that you have the best approach to marketing for short sales, I applaud your success. For those of you who do not, who are not meeting with the marketing success you desire, we can help.

Best wishes,

Ken Lawson, JD

TheLawsonGroup Mediation Services

I was asked to comment on what to do when buyers walk away upon receiving approval of a short sale, specifically whether they may be entitled to get their earnest money back.

Actually, this is part of a larger issue. But, let’s take this step by step.

When buyers submit an offer on a property, it becomes a purchase contract upon payment of the earnest money. The money is the “consideration” element required to form a binding contract. If the buyers walk away in violation of the contract, there is a breach of contract.

The question becomes, first of all, was the act in violation of a binding contract? If the answer is that it was indeed in violation of the contract, then the seller is entitled to whatever damages can be proved. In normal home sales, there is a widespread acceptance that when buyers breach purchase contracts, the earnest money goes to the seller as liquidated damages. The time and cost of filing a lawsuit is great enough that most sellers just keep the earnest money.

The problem is, however, in short sales, that walking away after lender approval of the short sale often leaves no time to find another buyer before losing the home to foreclosure. Thus the damages of losing the home are so great that the earnest money likely does not begin to cover the losses. The sellers and their agent may have a cause of action for a lawsuit far exceeding the amount of the earnest money.

So, the simple answer is, if walking away is not inviolation of a binding contract, the buyers are generally entitled to their earnest money, as the contract made the sale subject to… certain contingencies. If there is a breach of that contract by the buyers, then they at least would forfeit the earnest money as liquidated damages.

This is a good place to state that I am not giving a legal opinion or legal advice. I am merely providing general instructional information, and you should consult an attorney licensed in your state concerning your specific fact situation.

If the buyers’ contract contained language that allowed for an easy out, then no breach has occurred. However, even if there is a binding contract and the property is accepted “as-is”, a court might not enforce the contract if provisions are held to be “unreasonable” or “against public policy”. With the length of time short sales are taking to obtain approval, a local court might hold the length of time to be unreasonable, especially if there is no language in the contract as to the length of time permitted for third party approval.

For this reason, the agents working with our firm include specific language to provide a time frame the buyers must give for this approval. The language is contained in our book, Short Sales and Loan Modifications: A Practical Guide For Real Estate Agents & Investors.

Another issue is the sellers’ agent liability when a buyer walks. Naturally, sellers expect their agent to remain true to their fiduciary responsibilities. When a buyer walks and the sellers end up in foreclosure, they may attempt to hold their agent liable for not requiring a binding contract. For this reason, we provide in our Short Sale Business Manual a Binding Contract Waiver that sellers are required to review and sign in the event they are provided with a contract that does not fully bind the buyers for the duration of the time needed for lender approval. This Waiver protects the agent from potential later legal action by the sellers upset over having lost the short sale and then the foreclosure.

Here at the TheLawsonGroup, we are dedicated to protecting agents from potential liability. There are many lawsuits against real estate agents across the country, and it is important for agents to stay educated about the liability traps and protect themselves.

In summary, the answer about the earnest money is that if there is no breach, they get their money back. If there is a breach, the earnest money may be accepted as liquidated damages instead of a lawsuit.

This issue sparks a lot of discussion, and if any of you wish to talk to me directly about it, please do not hesitate to email or call me.

Best wishes,

Ken Lawson JD

TheLawsonGroup Mediation Services

A number of you have called and in our discussions it becomes clear that many agents have so much to do and so many interruptions that it is difficult to get everything done and still find time for your families.  The solution is time management.

I first attended time management training about 35 years ago when I was in the pastoral ministry.  Since then, in my law practice, I attended more training, read books, and continued to refine my time management skills.  In a busy law practice, getting everything done was extremely difficult, so time management is a lifeline that pulled us through to complete every project on time, and still have time to go water skiing and trail riding with my buddy Doug and others.

Managing your time is all about advanced planning, planning correctly, and adjusting to realities as they occur. This blog will not compete with all of the great books and courses in time management.  Rather, it is a simple, straight forward system for time management you can use, modfy, or whatever.  It is not intended to be best, sophisticated, or to set myself up as some kind of authority on the matter.  It is intended to be simple.  Simply put, simple.  I use it in my life and business.  It works for me.  I use my pda phone for my calendar and I put some of my time blocks into that calendar, but the following is how I simply am able to manage my time and all of the things that I do.

I have 3 forms that I use:  A Project List, a Project Task List, and a Task List.  These forms will be referenced in this segment

First, we simply apply time management principles to a weekly schedule. This can be adjusted for project dates, monthly schedules, and other time periods. We distinguish between Absolute Time Blocks and Flexible Time Blocks. Absolute Time Blocks (ATBs) are blocks of time (1 hour, 2 hour, 1.5 hour, etc) that you choose that are absolute. That is, nothing can interrupt you during those times, whether those interruptions are the phone, family or co-workers. Thus, you need to be very careful about assigning ABTs.

Flexible Time Blocks (FTBs) are blocks of time you organize for getting your work done. They could be interrupted by important phone calls or other events (like getting carried away talking too long with someone). It is important to protect FTBs so that you are not unduly stressed by the work that needs to get done.

Since ATBs cannot be interrupted, those blocks must be chosen very carefully. You want to place those blocks of time when they will not interfere with the need to take those important business calls. For example, you may need to work on research, networking activities, or BPOs at times when you are not going to be distracted or interrupted. You could plan a project with flexible time during the early part of the week and set ABTs at the end of the week in case you do not get it done. Or, you might want to plan it early Monday morning starting at 5:00 am so you can knock it out and have no stress from it the rest of the week.

Since ATBs are not be interrupted, you might plan those blocks for only part of the project activities for that week. For example, a project that you estimate will take 4 hours could have an ATB for 2 hours and FTB for 2 hours.

A Project is a grouping of activities that contain 2 or more tasks. A project could be a book to read, a BPO to complete, a group of networking activities combined, the group of tasks needed to get ready for the day, etc. At the beginning of the week, you list the Project List those projects on which you decide to work that week, assigning them to the projected days you are going to work on them that week. You do not assign the times right now, only the days. Take into consideration, though, the probable time blocks that may be available on those days. For example, you may know that your child has school activities on Tuesday and Thursday evenings, so you may have a 30 minute time block after you get home and the kids go to bed. So you decide to assign that book-reading project for Tuesday and Thursday.

On the Project Tasks form, list the tasks that need to be completed for that project this coming week. If a given project will last several weeks, you can take a Project Task form and list the group of tasks that will need to be completed in subsequent weeks. You can assign days if you wish, or just pick from the list that task or those tasks that you will complete when you organize each day.

The Task List is a daily organized plan for the activities of any particular day. That morning, or the evening before, you should plan your day and assign priorities. You can assign times to it if you wish, but it is sufficient to plan on your calendar time blocks during which you will work on the list. It is often best to take an early morning block of time to knock them out when your mind is fresh and you don’t have interruptions. Merely check the tasks off or cross them out as they are completed.

You will notice that the Task List has only 10 numbered task entries. When I first received time management training, that list was only 6. You should not overwhelm yourself. If you complete 6-10 tasks in a day, every day, you will accomplish more than most professionals. If you run out of items and you still have time blocks available for task work, then add more to the list and check them off as they are completed. In the event you do not get all of the tasks completed, then put that task on the next day available for that project.

BTW, you can use Task List to keep notes in of telephone conversations, phone numbers, etc.

When I owned a law firm, there were so many projects and tasks that using a computerized system was justified. However, in real estate, I found that a computerized system actually took more time, so a simple system like this works great for me even with my current business.

Keep it simple. Plan your work and work your plan.

Plan your week on the weekend or early Monday morning, and plan your day late the night before or, better yet, early in the morning.

Best Wishes,

Ken Lawson, JD

p.s.  Each of the forms referenced are simply forms with lines for item.  If any of you want them, just send me an email to info@LawsonGroupMediation.com and insert in the Subject field “Time Management Forms”.  I will send them to you for free.

I wrote a blog on June 27 concerning using a bankruptcy Chapter 13 to enable a short sale to be approved. That blog can be found here by going into the June archives or at this address: http://lawsongroupmediation.com/?m=200906. The information in that blog is quite valid and timely.

But how do you find the right attorney? Remember that there are three categories of bankruptcy lawyers as I described them: 1. Those who only file chapter 7 cases; 2. Those who file both Chapter 7 and Chapter 13 cases but do not want to go out of their way to process complex issues like short sales; and 3. Those attorneys whose focus is on the needs of the debtors and understand that a foreclosure or DIL can forever bar the debtor from a future mortgage and are willing to use complex strategies to help their clients.

How does your sellers find such an attorney as described in the third group? By printing off my earlier blog and emailing it to various bankruptcy attorneys along with a letter telling them you are looking for the right attorney to refer to clients. Tell them you want an attorney who understands the value of short sale versus the devastating effects of both foreclosure and DIL even in a bankruptcy case. Then ask them to let you know if they are willing or able to use a Chapter 13 to help meet the objectives of obtaining short sale approval.

Tell them to feel free to call me if they have questions. I am here to make money, but I believe in the concept that what goes around comes around and I am always willing to help.

Good luck in your endeavors.

Ken Lawson JD

TheLawsonGroup Mediation Services

In April, the Senate defeated a bill to permit mortgage cramdowns, which would have allowed a bankruptcy court to forcible modify a mortgage.  Recently, however, Barney Frank (D-Massachusetts) threatened to resurrect cramdown legislation after Treasury announced disappointing results of their modification efforts.  Frank stated that if the lenders do not increase the modifications he and his colleagues will again pursue cramdown legislation.

The ability of the bankruptcy courts to cram down mortgages would be a healthy boon to short sale agents.  Why?  Because chapter 13 plans can be written to sell the home in a short sale rather than modify the loan and this provision would be an incentive to process the case as a short sale.

Right now, few bankruptcy attorneys use the chapter 13 to help troubled borrowers to sell their home in a short sale.  The reason?  Most do not understand that a short sale as part of the bankruptcy is far better than a foreclosure or DIL (deed-in-lieu) in the bankruptcy.  They do not realize that a foreclosure or DIL may prohibit a debtor from ever again owning a home.

Being able to cram down the value to modify the payment provides a great incentive to permit, on the other hand, application to the SMI to approve a short sale.  Along with lien stripping provisions of those bankruptcy circuits that permit it, Chapter 13’s can be used quite effectively to manipulate a short sale in the face of servicing lender blocking or looming foreclosure sale.

Any of you wishing to explore these issues further can go to my earlier blogs about using bankruptcy to effect a short sale or you can email or call me.

Ken Lawson, JD

TheLawsonGroup Mediation Services