How Can I represent
pre-foreclosure clients with no equity?
"The Benefits to Pre-Foreclosure Clients and Attorneys"
By
Donavan Pieterse
"Just give it back to the bank" is common advice to
pre-foreclosure clients when they have no equity to protect.
There is an alternative but some lawyers believe it won't
benefit their firm financially.
Let's face it. Pre-foreclosure usually means the client has
no money to pay an attorney to stop the auction. Only a
bankruptcy can free up money. No equity typically means a
bankruptcy can’t be filed. There has to be another way to
create billable work and improve the client’s position. If
you rearrange the incentives and workload there is a
solution. A Short Sale!
A
short sale is required when a property is overleveraged by
mortgages, liens or other encumbrances. Once you factor in
closing costs, attorney fees, broker commissions, holding
costs, late fees, unpaid taxes and interest arrears even a
small amount of perceived equity evaporates. Creditors will
often accept discounted payoffs so the home can be sold
"short". The bank does not want to own the house.
So, who is going to process all the paperwork and navigate
the loss mitigation department's procedures? How about
someone with an incentive to see it close? An investor
trained to negotiate debt settlements fits the bill. They
work for free since they WANT to own the property.
Where does the attorney profit? Were you going to send them
away without a plan and without getting their business?
Instead of giving your client advice which will damage their
credit, tell them to enter into the investor's short sale
program and then act as their closing attorney. An investor
has the incentive to do all the heavy lifting of short sale
negotiating with NO cost to the client.
Short sales have a reputation for high workloads and lengthy
closing periods. Very true, so make the investor do the work
since they want to own the property. The bank’s discounted
payoff covers closing costs and your fees.
When the smoke clears at the closing, your client will have
you at their side, no deficiency judgments, no auction, and
the dignity of selling as opposed to a forced evacuation.
The bank wins, the investor wins, the client wins, and the
attorney gets paid by the bank discount and investor.
Doesn't it feel better to get paid while giving better
advice?
Donavan Pieterse is an investor and New
York State licensed real estate associate broker with Remax Realty Plus.
