To cut to the chase, if you have legal questions, you need to hire a lawyer. It is against the law for a real estate agent who is not licensed to practice law to dispense legal advice. Even if the agent knows the answer to a legal question, a real estate agent is not allowed to tell you.

Laws change all of the time. Banks have lawyers on staff who graduated from top-tier law schools. If a bank can find a way to put the squeeze on the seller of a short sale, do you think the bank will hesitate in the slightest? Here are 3 good reasons to hire a lawyer to negotiate a short sale: 

  • Release of Personal Liability

    Although a bank may forgive the balance between the mortgage balance and the final sales price, the bank might not release the seller from personal liability. This means it is possible that the bank might be able to legally garnish a seller''s future wages, attach bank accounts or otherwise pursue the seller for that money. It''s called a deficiency judgment.

    The short sale approval letter may or may not contain verbiage that spells out the bank''s specific rights. Absence of such language is no guarantee the bank has released a seller. Lawyers say that even a purchase money loan could possibly come back to haunt a seller years later, especially if the bank reserved the right to collect or somehow was able to prove the terms of the loan had changed during short sale negotiations.

  • Asset Protection

    Banks scrutinize a seller''s financial statement. Banks examine a seller''s bank accounts, tax returns and have been known to pull a seller''s credit report. If the bank is taking a loss on the sale, obviously the bank would like to recoup part of that loss. That''s why the bank looks at the seller''s assets and disposable income.

    If the seller is attempting a short sale without hardship, it is highly likely that the bank will ask for a seller contribution. Even if the seller qualifies for a short sale through a financial hardship, the bank could demand a contribution. This means the seller could be required to bring in money to close. The bank might ask the seller to liquidate a stock account or tap retirement funds.

  • Peace of Mind

    Once the short sale has closed, most sellers would like to put the ordeal behind them. A lawyer can offer a seller this assurance. A real estate agent cannot. 

Why Some Sellers Don''t Hire Lawyers to Negotiate Short Sales

Who has more power in negotiations with a bank? A lawyer or a real estate agent? The correct answer is the lawyer. So, why don''t more sellers hire a lawyer to negotiate the short sale? For the following reasons: 

  • Don''t understand the benefit
  • Agent, family or friends told them not to
  • Can''t afford to pay a lawyer
  • Erroneously believe their agent provides legal services for free
  • Face no liability and have no assets

Personally, I believe every short sale seller can benefit from a legal consultation prior to putting a home on the market as a short sale. I suggest to all of my clients that they obtain legal advice. Especially if I spot red flags that could come back to bite them. While the temporary HAFA short sale program that sunsets December 2012 offers some protections for sellers, it doesn''t take the place of obtaining legal advice.

Source: about.com author Elizabeth Weintraub