Watch a video of Ronald Jung at the bottom of this blog.
Ronald D. Jung bought a home, well priced at $475,000, in Longmont almost a year ago. The home happened to be a short sale, in which the lender accepts less than the mortgage amount in the transaction. Although Jung is a real estate attorney, he had little experience with short sales at that point. Like many have found, it was not a pleasant experience, to say the least.
“It was a nightmare,” Jung said from his Boulder office at 6630 Gunpark Drive. Now, however, Jung is working the other side of the short-sale transaction process.
Jung recently became “of counsel” in Colorado to the Scottsdale Law Group in Phoenix, although it remains a small part of his practice.
The Scottsdale Law Group works closely with Brent White, a law professor at the University of Arizona E. Rogers College of Law, who also has authored books and papers on real estate topics, including short sales. Scottsdale also provides free videos and periodic conferences for distressed homeowners.
White, who has appeared on 60 Minutes and has been quoted in newspapers such as the New York Times, Washington Post and Wall Street Journal, has received the most notoriety by arguing that at times breaching a mortgage contract with a so-called “strategic default” can be the most responsible and ethical course of action when it is done to fulfill more important obligations to one’s family.
Jung said that if an affluent homeowner who could afford to make a mortgage payment, but makes a business decision not to because the house is “underwater,” that is, worth less the mortgage, isn’t something he necessarily condones.
“Philosophically, I guess I do not see as much of a societal benefit to that as much as helping people who really are in need,” Jung said. “However, that being said, the bank is being made aware of the financial circumstances of the customer. So if the lender chooses to release the borrower of some or all of the borrower’s obligations, and they agree not to after the deficiency of what they owe, I have no problem with that. It’s not like the borrower is hiding something. There has to be full disclosure. If someone is trying to hide information from the lender, I would not accept them as a client.”
Jung learned first hand that going through a short sale not only requires a lot of hand-holding, but it is a process that could benefit from the scrutiny provided by a qualified attorney.
Realtors cannot practice law without a law license
In his case, he believes the Realtors involved at times over-stepped their legal authority allowed under their licenses.
Yet, he said that almost no one uses a lawyer in a short sale.
“In Colorado, I would be surprised if it is 1 percent,” Jung said.
One obvious reason, of course, is that someone contemplating a short sale almost by definition is financially strapped and can’t afford a lawyer.
“My hourly rate is $320,” Jung said. “If my office was going to take a short-sale case and charge on an hourly basis, between my fees and my para-legal charges, it probably would cost about $5,000 to $8,000. That is why I think this arrangement is a no-brainer.”
$500 upfront fee
With his arrangement with the Scottsdale Law Group it costs $500 upfront and Scottsdale gets paid on the back-end, “hopefully, by the lender,” Jung said.
Scottsdale typically will receive $3,000 or 2 percent of the transaction, which is ever greater, he said, when the home is sold.
“The only expense to the client is the $500,” he said.
Initially, Jung will meet with prospective client, preferably in person, free of charge, to discuss if this is the path they want to go down.
He will explain that for the $500, they will get a consultation with him to discuss “whether the short sale is the right avenue and the best thing. And the clients typically have a lot of questions about their particular circumstances.”
If the homeowner agrees to work with Jung, he sends their paperwork to the Scottsdale law firm in Phoenix, where a staff is on hand that specializes on dealing with a variety of lenders.
When all of the paperwork is completed, Jung reviews it and makes sure everything is in proper order. For example, he will make sure that both the mortgage and the promissory note is released with no liability, so the seller can’t be later sued by the lender for a deficiency judgment.
In most cases, so far, short sales have been the best option, although on occasion he has referred owners to bankruptcy lawyers. Sometimes, homeowners have unsuccessfully tried to get government modifications on their loans, and other times they are so close to the foreclosure sale they may not realistically have enough time to complete a short sale.
If Jung takes the case, the homeowner still will list the home with a real estate agent.
“Realtors, so far, have responded favorably to our involvement,” Jung said. “It frees them up to sell and market the home.”
However, the owner will no longer need a short-sale facilitator to work with the lender – even though, in Jung’s personal ordeal to buy a short sale, it almost certainly will not have closed, if a short-sale facilitator had not been brought in by one of the Realtors.
“We replace the short-sale facilitator,” Jung said.
Lawyers, but not real estate brokers or short-sale facilitators, are exempt from the so-called MARS – Mortgage Assistant Relief Services – a FDIC rule that took effect in January.
Among other things, the MARS rule prohibits short-sale facilitators and others from accepting upfront fees, which had been a common practice among many reputable firms. Using such a firm greatly increases the chances of a short sale consummating, experts say.
Beyond that, Jung noted that a real estate attorney can be an advocate for a homeowner, while a short-sale facilitator typically serve a more neutral role to help streamline the process by assuring that all of the proper forms are filled out accurately and in a timely manner.
“I think Realtors will increasingly choose to work with attorneys, if they can provide a cost-effective arrangement such as the one I have with the Scottsdale Law Group,” Jung said.
Frascona uses RealtyTMS
Oliver Frascona, a prominent real estate lawyer in Boulder, also is finding that short sales are an increasingly large part of his business.
However, he doesn’t replace short-sale facilitators, but works with them.
Frascona, a shareholder of Frascona, Joiner, Goodman, and Greenstein, P.C., uses RealtyTMS, a short-sale facilitator, on most of the short sales he handles.
“I pay the fee to RealtyTMS,” Frascona said. He said the combination of a qualified facilitator, such as RealtyTMS, and an experienced real estate attorney, makes for a powerful team.
“RealtyTMS does a good job and does not step over the line,” Frascona said. “They know what extension to hit if they’re calling Wells Fargo or some other lender.”
However, he agreed with Jung that it would be far too expensive for a typical short-sale candidate to hire his law firm on an hourly basis.
Frascona said anyone who is contemplating a short sale needs the help of several professionals, each serving a different role – a Realtor, a short-sale facilitator, a CPA and a lawyer.
“Realtors need to be freed up to do what they do best – go out and find buyers for real estate,” Frascona said. “I think when it comes to short sales, a lot of Realtors come dangerously close to practicing law without a law license.”
A CPA should be consulted because tax consequences of a short sale can become extremely complicated, Frascona said. “It’s not something you want to try to handle using QuickBooks,” said.
“And I hate to say this, but you can’t just hire any lawyer,” Frascona said. “A law license does not mean that you understand short sales, anymore than a general practioner can do brain surgery. A lawyer used to doing divorces, or corporate or intellectual property work won’t know the first thing about doing short sales.”
Indeed, Frascona said a lot of his short sale business comes from referrals from other lawyers.
Contact Ronald D. Jung at firstname.lastname@example.org or email@example.com.
To learn more about Oliver E. Frascona, please visit www.Frascona.com
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