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Foreclosure Attorney C.W. Franklin
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Getting the bank to ensure that you will be forgiven of any leftover debt can take some serious convincing. This article contains an outline of the terms and agreements you may want the bank to sign and agree to.
You should insist that your realtor and your bank make a contract that specifically states that you will no longer be liable for the debt. Do not rely on the bank to send you something after you have completed a short sale. A verbal promise from the bank is worthless. You need something in writing from the bank which states with particularity that you will no longer be liable for the debt. I would suggest a short paragraph which states something similar to the following:
Created by Attorney Charles Franklin & contributing editor Jared Speck
[Bank's name] HEREBY ACCEPTS THE PROCEEDS OF THIS SHORT SALE AS PAYMENT IN FULL OF ANY AND ALL OUTSTANDING COSTS AND FEES ASSOCIATED WITH THE LOAN BETWEEN [Bank's name] AND [Borrower's name]. BY ACCEPTING THIS SHORT SALE CONTRACT, [Bank's name] WILL BE FOREVER BARRED FROM ATTEMPTING TO COLLECT ANY FURTHER MONIES WHICH ARE DERIVATIVE FROM THE CONTRACT BETWEEN [Bank's name] AND [Borrower's name]. THE CONSUMMATION OF THIS SHORT SALE WILL ALSO BAR SAID BANK OR MORTGAGE COMPANY FROM SELLING ANY PORTION OF THIS DEBT TO ANY OTHER ENTITY. THE LOAN OF [Borrower's name] IS HEREBY FORGIVEN IN FULL AND BORROWER IS HEREBY RELIEVED FROM ANY AND ALL OBLIGATIONS OF PAYING THIS DEBT.
You may also want to add a sentence that specifies the following:
(1) Discharging the deficiency without a 1099
What this does: Removes your tax liability if the bank agrees to write off the debt you still owe them. For example your home sells for $90,000 at a short sale when you still owed the bank $100,000. If the bank agrees to write off the debt they will normally issue you tax form 1099 and the IRS will want to collect tax on it at the end of the year. If the bank agrees not to issue a 1099 you may not be liable for taxes on the discharged debt.
(2) Deletion of its trade line to the three major credit bureaus
What this does: Some people seem to think that selling their home in a short sale will not affect their credit rating. This is not the case because when a home is sold at a short sale the loan be labeled “not paid as agreed”. This means you did not hold up your end of the loan agreement and the bank will report the loan the three major credit bureaus. Getting the bank to agree to not report this is usually a bit of a long shot.
(3) Indemnity against loss that might occur by reason of a claim by another person enforcing the note.
The short sale contract or other accompanying document does not need to have this exact paragraph. This is just an example. I think that any Judge who read this paragraph would agree that the borrower should be relieved of any further obligations of paying on the loan. There are hundreds of different ways that you could type up a paragraph to be included within the short sale contract which would erase your mortgage debt. Several people have called and ask whether I could help them draft a paragraph in their short sale contract to ensure that their debt was being forgiven. I hope this helps. If you have any further questions or comments, please call us directly.
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Find out why the average homeowner generally does not have the resources available to defend against foreclosure without an attorney.
Learn the steps when trying to sell your home in a short sale. It’s a complex transaction that requires the scrutiny and approval of multiple parties within the bank.
Learn how to force the bank to accept your short sale offer. Does the Bank have any incentive for accepting your short sale offer? Your short sale offer must be in the Bank's best interest before the Bank will even consider your proposal.
Making an Outline of Short Sale Terms and Conditions
Other Terms You May Want to Add to the Above Document
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