The Offer to Purchase Has Become Much More Important

With a glut of distressed property still on the market and lenders realizing foreclosures aren’t very cost-effective, analysts are predicting a healthy spike in short sales for 2012. Short sales are quite unique in terms of deal dynamics, and should be handled differently than the typical transaction.

Massachusetts real estate attorneys and Realtors, however, are set in their ways when it comes to real estate contracts. For decades, we’ve been using the standard form Offer to Purchase and Purchase and Sale Agreement from the Greater Boston Real Estate Board or some variation thereof. We have also developed a predictable process in which the parties sign the Offer, conduct property inspections, sign the Purchase and Sale Agreement, obtain financing, order title, and get to closing.

With the recent proliferation of short sales, we have had to … yes, that dreaded word, CHANGE, the way we do things. Some agents and attorneys still do things the “old way” for short sale transactions, but they are doing themselves and their clients a disservice by doing so.

In this post, I will outline –  and explain — the “newer and better” way of handling the legal contracts in a Massachusetts short sale transaction.

The Offer to Purchase: Now The Operative Contract Document

We are seeing a shift to making the offer the operative contract in a Massachusetts short sale transaction. And for good reason. A short sale, by definition, is subject to a critical contingency: obtaining short sale approval from the seller’s lender(s). No short sale approval, no deal. Experienced short sale attorneys and real estate agents (and their clients) don’t want to spend the time and incur the expense of drafting a comprehensive (and contingent) purchase and sale contract when there is no guaranty of getting short sale approval. Furthermore, short sale lenders will accept a signed offer from the buyer during the approval process.

When we were first doing short sales, there were several instances where we drafted up purchase and sale agreements and then the short sale approval fell through. We had to charge the client for the drafting work or eat the cost. No one was happy.

The better way has proven to be the following:

• Build all contingencies into the Offer to Purchase, namely, Short Sale Approval and Financing (we’ll talk about home inspections later)
• Use a standard rider with short sale contingency language, with a deficiency waiver
• Seller to use best efforts in obtaining short sale approval
• Buyer agrees to be bound for set approval period  (60-90 days) in exchange for seller taking property off the market and not accepting back up offers. Negotiate deposit amount, usually 1% of purchase price. Buyer will obtain his financing and loan commitment during this approval period.
• Negotiate extension rights, with corresponding protection for Buyer’s financing/rate lock
• Upon short sale approval, purchase and sale agreement is signed within 5-7 days and full 5% deposit made
• Closing within 30 days of short sale approval. (Most short sale approvals are only good for 30 days)
• Waiver of home inspection or inspection prior to offer acceptance. Sellers should never agree to allow a home inspection contingency giving the Buyer a right to terminate. If the buyer doesn’t want to pay for an inspection up front, he is not a serious short sale buyer.

Change Is Hard…

I recognize that this is a departure from the “normal” way we document residential real estate contracts, but trust me, it’s a better way, and will actually decrease the time it will take to obtain short sale approval, because the parties are not waiting around for the P&S to be negotiated and signed and the buyer (and his attorney) don’t have to do unnecessary work.

Another important piece here is that the Buyer must get his financing in order, ready to go by the time short sale approval comes through. Lenders must recognize the unique short sale process and work with borrowers to get a firm loan commitment issued timely. Also, there’s no need for a lender to insist that the borrower have a signed purchase and sale agreement for underwriting approval. Under the process that I’ve outlined and under established Massachusetts case-law (McCarthy v. Tobin), the Offer is a legal and binding contract for the sale of the subject property and is sufficient for underwriting purposes. If it’s ok for the short sale lender, it should be ok for the buyer’s lender.

Help Is An Email Away

If you are a Realtor and need some guidance on the new Short Sale Offer, email me here and I will send you the form Rider. Also, if you need a referral for an excellent short sale negotiator, I highly recommend Andrew Coppo at Greater Boston Short Sales LLC.

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Richard Vetstein, Esq. is an experienced Massachusetts short sale attorney. For more information, please contact him at info@vetsteinlawgroup or 508-620-5352.

Tireless Determination The Key To Massachusetts Short Sale Success

What Is A Short Sale?

A short sale is special type of real estate transaction between a homeowner, his mortgage holder(s), and a third party buyer where the property owner’s mortgage balance exceeds the market value of the property — known as being “under water.” In a short sale, the homeowner’s mortgage lender agrees to accept less than what is owed on the outstanding mortgage, thereby being left “short.” Ideally, the lender will agree to release out the entire debt including any deficiency between the sales price and mortgage balance. This is called a deficiency waiver and most skilled short sale negotiators will insist on this.

The entire process can be extremely time consuming and typically requires a lengthy negotiation with the lender by a skilled Massachusetts short sale attorney or lawyer. Banks and loan servicers now realize that short sales are a preferred method to dispose of distressed properties as they are far less expensive than foreclosure. Short sales are generally reserved for homeowners who do not qualify for a loan modification.

Do I Qualify For A Short Sale?

Homeowners can qualify for short sale approval by proving a recognized involuntary financial hardship. An involuntary financial hardship is some event, beyond the homeowner’s control, that caused the mortgage payments to become unaffordable, even if only temporarily. Acceptable hardships typically include:

• Loss of a employment
• Curtailment of income
• Increased mortgage payment or liabilities
• Loss of tenant(s)
• Divorce or Separation
• Catastrophic medical event
• Job relocation
• Military service; or
• Death in the family

Most lenders distinguish between someone who lost their job and someone who voluntarily quit their job. Thus, unless you are able to prove that you were forced to leave your job, or asked by your employer to take a significant pay cut, a change of employment status may not automatically qualify you for a short sale. Furthermore, many homeowners have suffered multiple hardships, and it can be difficult deciding which hardship you should present to your lender when requesting a short sale. 

The Hardship Letter

As a part of the short sale application process, a skilled Massachusetts short sale lawyer will draft a hardship letter detailing why you are no longer able to make mortgage payments on your home and why you qualify for a short sale. The hardship letter can be one of the most important aspects of the short sale process and should be as detailed as possible, telling a compelling story about the applicant’s individual circumstances.

As part of the short sale hardship package, the short sale applicant will also submit the following:

• Third party authorization (allowing your lawyer and/or realtor to communicate with your lender)
• Financial worksheet (breakdown of monthly expenses and income)
• Hardship letter (why you could pay your mortgage before and why you cannot now)
• Recent pay-stubs
• Recent Bank statements
• Offer to Purchase
  
• MLS listing showing the market history of your property
• Last 2 Years Federal Tax Returns

How Long Does Short Sale Approval Take?

Depending on who your lender is and how many loans you have, short sale approve can take on average between 60 – 120 days, depending on the particular lender and complexity of the case. If the lender makes a counter offer on the purchase price or if there are multiple mortgages and liens against the property, the process will take longer. One of the keys is to submit requested documentation as fast as possible, and to stay on the lender, with frequent requests for status updates. That’s what separates a skilled short sale attorney from the run-of-the-mill negotiators who’ll let your file languish.

Credit and Legal Ramifications

A short sale is far less damaging to your credit and ability to secure a mortgage down the road than a foreclosure or bankruptcy, although it does have some impact.

Do I Need A Short Sale Attorney?

Only if you want to maximize your chances of getting short sale approved, obtain approval in the fastest manner possible, and protect your legal rights and future credit history at the same time! There are real estate agents and short sale firms advertising themselves as short sale negotiators — and some are really good — however, they are not licensed to provide legal or tax advice, and you must seek that advice elsewhere at additional cost. With an experienced Massachusetts short sale attorney, the applicant can “kill two birds with one stone,” by having the attorney take over the entire short sale approval process. While negotiating with your lender, the short sale attorney can simultaneously perform all necessary short sale legal work, including reviewing and drafting the offer to purchase, short sale approval letter and purchase and sale agreement with short sale addendum/riders. The cost is relatively the same across the board, and some of the fees may be paid by the lender, depending on who it is.

We highly recommend Andrew Coppo at Greater Boston Short Sales LLC, an experienced and successful short sale negotiator. Andrew writes all about Massachusetts short sales on his fantastic blog, The Closing Table.

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Richard Vetstein, Esq. is an experienced Massachusetts short sale attorney. For more information, please contact him at info@vetsteinlawgroup or 508-620-5352.

It’s that time again for our annual review of hot topics and top posts for the last year, 2010.

#5. The Great Flood of 2010. Ah, who can forget the flooding in the spring of 2010. I sure remember bailing out my flooded basement every 30 minutes through the night, into exhaustion. Good times… FEMA declared a “major disaster” and the IRS granted taxpayers in 7 counties an extension to file their taxes.

Read More: Federal Aid And Tax Extension To May 11 Available To Massachusetts Homeowners Affected By Flooding

#4. The Obama HAFA Short Sale Program. The Obama short sale program, announced at the end of 2009, was aimed to speed up short sales of homes and other loan modification alternatives to stem the rising tide of foreclosures. The Home Affordable Foreclosure Alternatives Program (HAFA) provides financial incentives and simplifies the procedures for completing short sales, a growing practice in which a lender agrees to accept the sale price of a home to pay off a mortgage even if the price falls short of the amount owed. By all accounts, however, the HAFA program has been a dismal failure.

#3. On Jan. 1, new RESPA rules went into effect, significantly changing the way lenders disclose settlement services, in particular closing attorneys’ fees, and title insurance. Read more: New RESPA Rules 2010: Disclosure of Settlement Services, Closing Attorneys’ Fees, And Title Insurance .

#2. Our popular primers on the Massachusetts Offer to Purchase and the standard form Purchase and Sale Agreement, checked in with over 16,000 reads. Great to see posts about buying a new home ranking so highly. An indicator of the recovery of the Massachusetts real estate market perhaps?

Read More:

• There’s Nothing Standard About The Massachusetts Standard Purchase and Sale Agreement
• The Massachusetts Offer To Purchase: A Binding Contract

#1–Fannie Mae & FHA Condominium Regulations:  Our series on the Fannie Mae and FHA strict new condominium lending rules were incredibly popular, combining for over 25,000 reads during 2010.  The new guidelines had condominium developers and associations, buyers and sellers in a tizzy, as Fannie and FHA imposed much tougher pre-sale requirements, condominium financial guidelines and the imposition of unit owner HO-6 insurance policies, among other requirements.

Read More:

• The Catch-22 Impact of New Fannie Mae Condominium Regulations.
• New FHA Condominium Lending Guidelines Sure To Slow Financing and Chill Sales
• HO-6 Policies Required By Fannie Mae & FHA

Honorable Mention: With Old Man Winter upon us, our post on the changes in Massachusetts snow removal law is very popular:  Massachusetts Property Owners Now Have Legal Responsibility To Shovel Snow & Ice.

What To Expect In 2011

Final Ruling In the Ibanez Foreclosure Case

Early 2011 should bring the final word from the Mass. Supreme Judicial Court on the very controversial foreclosure case of U.S. Bank v. Ibanez which invalidated foreclosures across the state for sloppy paperwork. Thousands of property owners and their ownership rights to their homes hang in the balance. Click Here For Our Entire Series Of Post On the Ibanez Case.

Fate Of Real Estate Attorneys

Year 2011 should also bring the final word in the The Real Estate Bar Association of Massachusetts, Inc. (REBA) v. National Real Estate Information Services, Inc. (NREIS) case. This case pits Massachusetts real estate closing attorneys versus out of state non-attorney settlement service providers which are attempting to perform “witness or notary” closings here in Massachusetts. At stake is merely the billion dollar Massachusetts real estate closing industry.

What are your predictions for 2011?

We are pleased to have yet another guest blogger: Debra McPhee, CIC, CPCU, Owner of Suburban Insurance Agency of Holbrook, MA, and a very qualified Massachusetts Flood Insurance Agent. Debbie is here to write about flood insurance, a timely topic given the recent March floods.

A flood can devastate your home and your financial security. Any flood—even a small one—can cause thousands of dollars in damages.  Even homeowners in low to moderate-risk zones are at risk. Up to 25% of all flood claims come from people living outside high-risk zones.

Flooding happens anywhere including right here in Massachusetts. Just recently, floods hit nearby towns. People discovered the hard way that when it comes to floods, no one is safe.  You don’t have to live near a major waterway to be flooded. Sudden severe storms can cause flooding. Just because it has never flooded in your area, doesn’t mean it won’t.

You might think that your Homeowners insurance covers flooding, but it doesn’t. It covers all kinds of things, but not flooding.  Flood insurance gives your home that crucial layer of protection your Homeowners insurance doesn’t provide.

What Is The Definition A “Flood”?

In simple terms, a flood is an excess of water on land that is normally dry. Anywhere it rains, it can flood.  A flood is a general and temporary condition where two or more acres of normally dry land or two or more properties are inundated by water or mudflow. Many conditions can result in a flood: hurricanes, broken levees, outdated or clogged drainage systems and rapid accumulation of rainfall.

Myth: Flood Insurance Costs Too Much

You might be surprised how inexpensive it is. The average flood insurance policy costs less than $570 per year. Most homeowners live in a moderate-to-low risk area and are eligible for coverage at a preferred rate with building and contents coverage for one low price. In fact, building and contents coverage starts at just $119 per year. If you live in a high-risk area, a standard rated policy is the only option for you. It offers separate building and contents coverage.  If your home is in a high-risk flood area and you have obtained a mortgage through a federally regulated or insured lender, you are required to purchase a flood insurance policy.

How to Purchase Flood Insurance

Flood Insurance is written through the National Flood Insurance Program (NFIP), a federal program authorized by FEMA.  Flood insurance is available to homeowners, renters, condo owners/renters, and commercial owners/renters. You need to contact a Massachusetts Flood Insurance Agent for a quote and/or application (all policies written by the NFIP are written through insurance agents).

Typically, there’s a 30-day waiting period—from the date you purchase the flood insurance—before the policy goes into effect. The waiting period, however, does not apply to a new home purchase or refinancing of a mortgage if the mortgagee requires flood insurance.

What is Covered by Flood Insurance – and What’s Not

The following is a summary of items covered and not covered by flood insurance.  For specific details as to what is covered, you have to refer to the actual policy.

What’s covered under Building?

• The insured building and its foundation.
• The electrical and plumbing systems.
• Central air conditioning equipment, furnaces, and water heaters.
• Refrigerators, cooking stoves, and built-in appliances such as dishwashers.
• Permanently installed carpeting over an unfinished floor.
• Permanently installed paneling, wallboard, bookcases, and cabinets.
• Window blinds.
• Detached garages for up to 10% of the building limit; other detached buildings require a separate Flood policy

What’s covered under Personal Property?

• Personal belongings such as clothing, furniture, and electronics
• Curtains.
• Portable and window air conditioners.
• Portable microwave ovens and portable dishwashers.
• Carpets not included in building coverage
• Clothes washers and dryers.
• Food freezers and the food in them.

What’s never covered by flood insurance?

• Damage caused by moisture, mildew, or mold that could have been avoided by the property owner.
• Currency, precious metals, and valuable papers such as stock certificates.
• Property and belongings outside of a building such as trees, plants, wells, septic systems, walks, decks, patios, fences, seawalls, hot tubs, and swimming pools.
• Living expenses such as temporary housing.
• Self-propelled vehicles such as cars, including their parts.
  

  Debra McPhee, CIC, CPCU

Limitations to coverage in a basement

• Coverage in a basement is very limited. It includes cleanup expense and items such as furnaces, water heaters, washers and dryers, air conditioners, freezers, utility connections, and pumps.
• There is no coverage for the contents of a finished basement and improvements, such as finished walls, floors, and ceilings.
• Personal property located in a basement is not covered.

Please call me, Debra McPhee, CIC, CPCU at Suburban Insurance Agent at 781-767-3300 and let’s talk about your flood insurance needs. Don’t let a flood wash away your financial future.

The Obama Administration’s Home Affordable Foreclosure Alternative program, known as HAFA just kicked off on April 5th. The HAFA program promises to streamline short sale transactions. However, read the fine print, and there are a lot of unanswered questions about the program and how it will affect short sale transactions in the “trenches.”

Is the new program really going to streamline the process or create more headaches for the industry?

To begin, it’s important to clarify that the HAFA program is part of the federal Home Affordable Modification Program (HAMP). HAFA guidelines will only apply to short sale or deed in lieu of foreclosure requests made by borrowers who have applied for a HAMP loan modification. That means borrowers will have had to go through all the time, hassle and endless forms under the HAMP modification program before even being eligible for a HAFA streamlined short sale approval. This requirement will likely substantially reduce the number of HAFA-required short sales. HAFA also requires participating lenders to forgive a borrower’s loan deficiency if the lender accepts a short sale. This is a significant deviation from many lenders’ policies. There is even some debate about which lenders actually fall within the mandate of HAFA. For all of these reasons, it is far too early to speculate regarding the impact of HAFA on the current backlog of short-sale requests. It is very unlikely, however, that HAFA is going to quickly streamline the short sale process.

What are the benefits of the HAFA program?

HAFA does create the opportunity for standardization of short sale and deed in lieu of foreclosure forms. Given the wide range of agreements currently in use, standardization will help borrowers to better understand the terms of any negotiation. HAFA also requires lenders to standardize their criteria for the approval of a short sale or deed in lieu. Again, that kind of practice will enable borrowers to better anticipate the likelihood that a particular offer will be accepted and what the acceptance means.

Short sales seem to be picking up right now. But, in the end, will the already in place REO system be a better way to alleviate these troubled loans?

Short sales and REO sales are complementary processes. Both alternatives are necessary to systematically deal with property subject to defaulted loans. All available statistics indicate that when a mortgage loan is in default, the mortgaged property begins to fall in value. It’s easy to understand why. Even the most honorable borrower faced with a loan in default is unlikely to continue necessary maintenance much less improvement. Short sales allow these properties to be sold much more quickly than would occur if a full foreclosure and sale after redemption was required. As such, less reduction in property value results from the short sale alternative.

Not every parcel, however, is going to qualify for short sale treatment. In these cases, lenders will be forced to institute a foreclosure. Accordingly, an effective REO disposition process must be maintained by mortgage lenders. Whether short sales or foreclosure and REO resale becomes the norm for troubled properties remains to be seen. In any event, everyone benefits from a timely process which retains as much value as possible in our homes.

Here in Massachusetts, short sale transactions appear to be on the rise. However, there are plenty of stories of buyers waiting many many months to close. If you are considering buying a short sale property, read our post on short sale transactions, and be prepared to wait it out, which may well be worth it given the reduced price you’ve likely negotiated.

Source:  Housing Wire

In the spirit of the New Year, let’s look back at the top legal issues of the past year and peer into the crystal ball for a glimpse at 2010.

Top 5 Posts For 2009

#1.  The Catch-22 Impact of New Fannie Mae Condominium Regulations. In January, Fannie Mae was the first government agency to drop a big bucket of cold water on condominium lending underwriting practices which some say contributed to the condominium market meltdown. FHA and others would follow later in the year. The new guidelines had condominium developers and associations, buyers and sellers in a tizzy, as Fannie Mae imposed much tougher pre-sale requirements, condominium financial guidelines and the imposition of unit owner HO-6 insurance policies, among other requirements.

#2.  New FHA Condominium Lending Guidelines Sure To Slow Financing and Chill Sales. The Federal Housing Administration (FHA) followed Fannie’s lead in tightening condominium lending requirements. Originally proposed over the summer, FHA delayed implementation of the new guidelines until earlier in the month and watered down some of the most stringent requirements, after major lenders and community association groups complained.

#3.  There’s Nothing Standard About The Massachusetts Standard Purchase and Sale Agreement. Great to see a post about buying a new home ranking so highly. An indicator of the recovery of the Massachusetts real estate market perhaps? Check out this post for the ins and outs of the very seller friendly standard form P&S and how to level the playing field if you are a buyer.

#4.  Massachusetts Land Court Reaffirms Controversial Ibanez Decision Invalidating Thousands of Foreclosures. If you were following the foreclosure mess, you couldn’t have missed this judicial bomb dropped by Massachusetts Land Court Judge Keith Long. The so-called Ibanez ruling invalidated thousands of foreclosures across the state because the lenders did not record their paperwork up to date at the registries of deeds. Lenders have appealed the ruling, but hundreds of foreclosure titles remain unmarketable in the wake of this controversial decision. More to come in 2010.

#5.  Short Sales Get Boost From New Obama Treasury Guidelines. On December 1, the Obama administration set long-awaited guidance on a plan for mortgage companies to speed up short sales of homes and other loan modification alternatives to stem the rising tide of foreclosures. The Home Affordable Foreclosure Alternatives Program provides financial incentives and simplifies the procedures for completing short sales, a growing practice in which a lender agrees to accept the sale price of a home to pay off a mortgage even if the price falls short of the amount owed.

Honorable Mention. I would be remiss if I didn’t mention the new RESPA guidelines and the new Good Faith Estimate and HUD-1 Settlement Statement which go into effect Jan. 1, 2010.

2010 — The Year We Rebound

The Massachusetts Real Estate and Mortgage Market

All signs are pointing to a real estate rebound for the Bay State in 2010, with home and condominium sales surging over 50% from last year in November. I have definitely seen an uptick in new purchases on my end and we are preparing for a busy 2010. Along with good news from the real estate market, however, comes higher interest rates as the bond market reacts to positive news. My friend mortgage consultant Brian Cavanaugh at SmarterBorrowing.com does a good weekly mortgage market update and is presently advising borrowers to lock into current rates as he predicts rates will rise in 2010 to close to 6% for a 30 year fixed. Of course, when rates go up, buying power goes down, thereby cooling the market a bit.

Regulatory

Hopefully we’ve seen the end of increased regulation of the condominium market from the government giants. Let’s toast that they can let the market take its course with the new guidelines in effect.

Stimulus/Home Buyer Credit

As the economy continues to recover, you can probably bet that the Obama administration is going to let up on the stimulus/credit throttle for 2010. So take advantage of all the credits available now, because this is probably the last you will see of them for awhile.

Housing

On the housing front, Massachusetts builders are reportedly foregoing McMansions in favor of  the more affordable middle market of homes in the $400,000 to $600,000 price range. Finally!

Technology

Lastly, technology, the internet and social media will play an even bigger role in how realtors, lenders and real estate attorneys do business. The National Association of Realtors says that 87% of home buyers use the Internet to search for homes. I tell all my Realtor friends they must have a strong Internet presence and to take advantage of blogging, social media and Active Rain to boost their online presence.

For attorneys, in 2009 we saw the tip of the iceberg for electronic recordings and closings as well as online transaction management. Our office just set up an online transaction management system where buyers, sellers, loan officers and realtors can view the status of the loan whenever they want through a secure online portal. It’s a fantastic tool. While electronic closings are a way’s away from gaining the necessary critical mass of lender acceptance, many Massachusetts registries of deeds are now e-recording, and that will continue to rise. The next decade will certainly bring electronic closings and paperless transactions into the norm.

Well, let’s clink our glasses to a very happy, healthy and fruitful New Year!

Divorce, unfortunately, often plays a major role in real estate transactions and decisions. The tough economy has added insult to injury for those unfortunate souls facing divorce in Massachusetts.

Quincy, Massachusetts Divorce and Family Law Attorney Gabriel Cheong offers great advice on his blog, the Massachusetts Divorce Lawyer Blog, about what to do if you are getting a divorce and the marital home is “underwater.” That is, when the balance on the mortgage is more than the fair market value of the house:

You’re divorcing and you need to sell your house that you own jointly with your spouse but with the recession, your house is now worth less than the mortgage that you have on it. You’re under water. You’re upside down on your mortgage.  Whatever you call it, you’re stuck and don’t know what to do.

Well, here are your choices:

1. You stay in the house with your divorced spouse until either one of you can afford to move out or refinance. You might be thinking to yourself that that is ridiculous. Who would ever live with their divorced spouse AFTER the divorce?! More and more people are doing so in this new economy because there is simply not enough money to go around. It’s a sucky situation but it’s a reality.
2. You and your spouse continue to co-own the house together until someone can refinance the property. Either you live in the house or your spouse lives in the house. You could have a situation where only the person who’s living in the house pays for everything or everything is split 50/50. Either way, you two will still own a house together.
3. You refinance. If you try to refinance, know that you will have to put up the money to make up the difference between what you owe and what your house is worth. That would be tens of thousands of dollars if not more. Some people have that kind of money but most do not.
4. You do a short sale. A short sale is when you get the permission of your mortgage lender to sell the house for less than what you owe on the mortgage and hopefully, you negotiate that you won’t have to make up the difference. Know that most lenders will not extend the option for a short sale unless if you’re behind on your mortgage payments by several months. At that point, your credit would’ve taken a hit already.
5. You let the home go into foreclosure. This is not an ideal situation and it’s not generally recommended.
6. You try to negotiate a modification or an assumption of the current mortgage. This is very difficult and very lender specific. Some will let you  modify the loan or do an assumption whereby you don’t have to refinance the house and yet be allowed to remove a spouse’s name off the mortgage. It’s worth a try.

Those are all your options.  The important thing to remember is this: do not ever sign over a deed to the house over to your spouse’s sole name without also being off [released from] the mortgage.  If you do so, you will have no equity interest in the property yet be liable for the mortgage (debt interest).

As Attorney Cheong outlines, it’s a tough pill to swallow for those in the unfortunate predicament of divorcing in this recessionary economy. I’ve heard stories of divorcing spouses creating separate living quarters in a house, akin to an in-law suite with separate entrances, etc.

From a real estate perspective, preserving the value of the property is paramount and in the best financial interests of both spouses (and the children). With the enactment of the new Obama short sale regulations, a short sale may be a good option for divorcing couples who are “under water.” The new regulations require that the lender agree to waive the outstanding loan balance on an approved short sale, so both spouses can wipe their credits clean of the mortgage obligations and move on with their lives.

If you are in the middle of a divorce, feel free to contact me, Richard D. Vetstein, and I can work with your divorce attorney to ensure that you’ll be protected in any refinance, short sale, loan modification, or foreclosure situation.