Aloha,

I field a lot of good questions regarding short sales, loan mods and deficiency settlements every day. As you know I've decided to pass on any good information that comes across my desk from attorneys, accountants and other professionals. So keep an eye out for these blog posts from time to time because they will contain information that is sure to be timely for you and your clients.  The following comes via Scott Piper at Mortgage Rescue Alliance.  It's a great read.

And please remember if your decide to place your home on the market in a "short sale" status, I'm here to serve you.

Q: If I do a short sale on a "Non-Recourse, Purchase Money Loan" is it truly "Non-Recourse"?

A: No, not necessarily. According to legal opinion from Real Estate Attorney Robert Jacobs. Please review the attached legal brief for further information or contact Bob directly. Remember to send your clients to an attorney and accountant before they make a decision on how to handle their real estate transaction.

From the Desk of Bob Jacobs, Attorney at Law

"Recourse loans are loans where a borrower may have personal liability for any deficiency or shortfall between the loan balance and the sales price.  A non-recourse loan is a loan where a borrower will not have personal liability for any deficiency or shortfall between the loan balance and the sales price.

It is important to note that borrowers who sell their property through short sales can potentially have personal liability to the lenders following a short sale even though the loan is a non-recourse loan.  The only way to be absolutely certain that a borrower will not have personal liability on a non-recourse loan following a short sale it if the lender either releases the borrower from personal liability, or if the property is sold through a non-judicial foreclosure of that loan.  If the property is encumbered by two or more loans of deeds of trust, then additional factors must be considered in determining potential seller liability.

The statutory protections concerning a non-recourse loan are present only when a property is sold through a foreclosure sale.  If a property is sold through a short sale, then the statutory non-recourse protections probably do not apply, with the result that following a short sale a borrower may be personally liable to a lender even on a non-recourse loan.

Some Realtors may be considering advising their clients about whether of not their clients are likely to have personal liability following a short sale based on whether or not the client's loan is a recourse or a non-recourse loan.  If an agent advises a client that the client will have no personal liability to their lender following a short sale because their loan is a non-recourse loan, then such advice may be in error.

It is recommended that real estate agents not make such recommendations nor advise their clients as to whether or not clients are likely to have personal liability following a short sale or foreclosure.  Instead, it is recommended for both recourse and non-recourse loans, that real estate agents advise their clients to seek legal counsel with respect to whether or not such clients may have personal liability following a short sale or foreclosure.  With respect to tax issues, it is recommended that real estate agents advise their clients to seek professional tax advice concerning the potential tax consequences of a short sale or foreclosure."

-Bob Jacobs