In the last couple months I have seen a number of disasters occur where a homeowner is facing potential litigation because of failed advice or “prescription”. I thought I would share my philosophy. “Prescription without Diagnosis is Malpractice”. What does this mean?
Well, lets say I am a heart surgeon. You come to me and tell me your heart hurts. You want a new heart. I agree based upon what you describe as the problem. I cut open your chest and give you a perfect new heart. You are happy. Here is the problem. What if your old heart was just fine? What if your old heart was really not the problem? You did get a new heart right? So, why is is malpractice? Because, I did not perform any Diagnosis. I did not run tests on the old heart to confirm the problem.
When a homeowner faces a point today when they can no longer afford their home, they typically run to the nearest Realtor. Why? Well, because the only real solution they can see is to sell the property as they don’t see any quick way to solve the immediate problem of either too much mortgage or too little income. But, the problem is not a Real Estate problem. It is a legal problem. The homeowner’s goal is to break the existing contract with the lender i.e. Deed of Trust or Mortgage without any consequences or the least consequences.
Now, here in AZ, under the current framework, a licensed AZ Real Estate Agent is required to refer that homeowner to Legal and Tax counsel. For the most part, real estate agents do this. Now, why would the AZ Short Sale Addendum require that? Because, it is not a real estate problem and if that homeowner does conclude a Short Sale, they will create Legal and Tax questions. It is that referral to Legal counsel that troubles me today.
Let’s take Sue, name changed to protect the innocent, she is referred to a very well respected Real Estate Attorney here in Phoenix, Arizona. She sits down with the Attorney and he explains Arizona Anti-Deficiency protection. She is happy to hear that she can sell her home short or let it go to foreclosure and be protected from mortgage deficiency. Oops! Going back to my analogy, the Attorney never reviewed her loan documents. He never read the Deed of Trust. He never reviewed the Title History on the property. Why is that a problem? Well, Sue gets a call from her lender and they are going to sue and she now finds herself in my office.
You see, the first thing I do is request she bring all of her real estate and loan documents into the office for the consult. I listen to her story. She tells me that based upon the Verbal opinion from the Attorney, she went ahead and married her current husband and purchased a new home under his credit and qualifications. She moved out of her home and listed it for short sale. As she and her new husband could not afford both the new home and the old home, they were not able to maintain the old home. That mortgage fell into Default. That is where the trouble starts. I read the Deed of Trust. It is not a conventional loan, as she described. It was a US Department of Agriculture Rural Housing Mortgage. That particular mortgage program requires that the borrower to occupy the home as a Primary Residence. Obviously, she was no longer in the home. Further, she did not have just one loan. She also had a Subsidized 2nd mortgage on the property as well. This was a Federal Guaranteed portion with a recapture clause if she sold the home or it defaulted in a certain period of time. The key point is this. Her mortgage is NOT protected from Anti Deficiency. Further, as the documents were clear in writing, the only remedy was to move back into the home. She could not do that without putting the rest of their finances in jeopardy. She thought Bankruptcy might solve the issue but, this being a Federal Debt, she might extinguish the monetary portion of the deficiency but federal law was going to allow them to reach into her Tax Refunds till it was paid back. Her total damage was over $100,000 and with all probability she will not see a Tax Refund for the rest of her working life.
All of this because someone did not take the additional time look at the actual documents. As a Realtor, you are looking out for your clients best interest. A one hour jab session has absolutely no value whatsoever. If you are going to refer clients to Legal Counsel, ensure the law firm is going to actually review the documents. Make sure that the law firm is going to issue their opinion in writing. You see, in Sue’s story, there was nothing in writing and the particular attorney is denying that he told her to do anything that she did. His word against her’s. Require that the Attorney sign that writing or legal opinion. Make sure that your client knows clearly what their legal liabilities are and what their legal rights are prior to listing that home. Otherwise, are you willing to risk your livelihood and your clients future on a one hour conversation?
Before you Short Sale your home. Before you Walk Away. Before you go to foreclosure. See a qualified Attorney and get a diagnosis of what is really wrong and get that plan in writing. Otherwise, what are you paying for?
Thomson Law’s Mortgage Mediation practice group specializes in helping homeowners facing a point today or in the near future where they can no longer afford their mortgage and owe more than the home is worth. Sit down with us and discuss your options first. For more information go to www.MortgageMediationGroup.com
