I get a phone call from a client, and it always goes a little like this. “I’m selling my house but I owe more than it is worth – can you notary the papers?” I love the honesty of it, but right behind that sentence is a knot of terminology that nobody in the room actually agrees on. There is the “short sale.” There is the “deed in lieu.” There is the “distress sale,” which nobody can quite define the way they think they can. And underneath all three sits a single question that the notary gets paid to answer: which of these papers, exactly, needs a signature in front of a New York notary, and which signer does it need it from?
So today I am walking the paperwork the way it actually moves through a New York closing, because the notarial act is the part that can quietly stall the whole thing. I am not a closing attorney, and I am not going to pretend I am. I am a practicing New York Remote Online Notary, and this is the part of the file I sit on. If you are the homeowner who owes more than the house is worth – or you are the buyer, the lender’s counsel, or the cousin who was asked to “just handle the signing” – this is the map I hand you.
Disclaimer: This post is for general informational purposes only and is not legal, tax, or financial advice. Consult a New York attorney, a HUD-approved housing counselor, or your closing agent about the specific terms of your transaction before signing any document.
“Distress Sale” Is the Umbrella, Not the Document
Let us settle the vocabulary first, because a lot of the confusion in these files is purely verbal.
A distress sale is the umbrella. It is any exit from a home where the owner is in trouble: they cannot keep up the payments, they are behind, or the value has fallen below the balance. “Distress sale” is a description of the circumstance, not a legal document with a notary block on it. If you hear the phrase at a kitchen table, assume it is a category, not a form.
A short sale is one specific exit inside that umbrella. The homeowner lists the home, a real third-party buyer comes along, and the two of them work through the owner’s mortgage servicer until the lender approves a sale price that is below the amount still owed. The buyer closes, the title transfers to that buyer, the lender is paid from the proceeds, and (this is the part everyone asks about) the remaining gap is either waived or left open for a deficiency judgment. The signature event for the notary is the seller’s deed.
A deed in lieu of foreclosure is a different exit inside the same umbrella, and it is far less common in New York than people assume. Here there is no buyer. The homeowner simply conveys title directly to the mortgagee – the bank – in exchange for the bank taking the property and (with a bit of luck) releasing the owner from the remaining balance. The notary’s signature event is still a deed, but it is a different deed, and it comes with a release attached that a short sale usually does not.
A foreclosure auction is the exit that happens when the other two do not happen: the court, not the parties, delivers the deed through the court clerk, with no notary in that chain and a 90-day window for the lender to seek a deficiency judgment.
The point I want you to keep, because the rest of the article hangs on it: all three paths move through a transfer of title, and a New York transfer of title requires an acknowledged, recorded deed. The notarization is the hinge. Get the deed’s acknowledgment right and the file keeps rolling. Get it wrong – a missing co-owner’s signature, a deed that is never recorded, an acknowledgment done in the wrong state – and the house does not roll out. It stalls. That is where I come in.
| Path | Title passes to | Buyer present? | Notary-critical doc | Deficiency exposure |
|---|---|---|---|---|
| Short sale | A third-party buyer | Yes | Seller’s deed + RP-5217 | Waived in writing, or open |
| Deed in lieu | The mortgagee (bank) | No | Deed to lender + release | Waived in writing, or open |
| Foreclosure auction | Auction buyer (via clerk) | Yes (bidder) | Clerk’s deed (no notary) | 90-day window under RPAPL 1371 |
One sentence to keep in your pocket: the word “distress” describes the problem; the word “deed” describes the signature.
How a Short Sale Actually Moves Through New York
A short sale is a slow animal, and the notary sees the last mile of it. Here is the arc, because the paperwork only makes sense in order.
The file opens with the servicer, not the notary. The homeowner files a short-sale request with the mortgage servicer. In New York the servicer will typically order a broker price opinion (a BPO) or a full appraisal and want a hardship package: income, expenses, the mortgage balance, and why the owner can no longer carry the note. Some servicers will also ask the owner to show the home has been marketed for a set period before they will even look at a discounted sale.
The buyer comes in second, under a contingency. A real buyer signs a purchase contract – and in a short sale the contract almost always carries a lender-approval contingency. That contingency is the load-bearing wall: the deal only moves if the seller’s lender agrees to the price. Until that letter lands, the buyer’s deposit is at risk and the seller should not sign anything downstream that assumes a certain date.
The approval letter is the hinge. The servicer’s underwriter reviews the price against the BPO, the buyer’s proof of funds, and the loan’s own terms. If it clears, the lender issues a short-sale approval letter, and that single document is worth more to the file than the deed. It will state: the approved sale price; that the existing mortgage will be paid off in full at closing; whether any remaining balance is being waived; how the sale will be reported to the credit bureaus; and the deadline by which the closing must occur. I will come back to that deadline, because it is where I have watched a closing slip.
The gap, and the word that decides it. Let me give you the shape of a real one. The owner owes $240,000 on the mortgage. The home appraises near $200,000. The lender approves a $200,000 sale and takes the buyer’s $200,000 at closing, leaving a $35,000 gap. Now the single most important word in the approval letter answers what happens to that gap: is the balance being waived, or released? A waiver can be conditional – it may waive only the right to sue and leave a cloud of uncertainty. A release is broader and cleaner: the lender gives up the claim to the remaining balance. New York has no statute that forces a lender to forgive the gap in a short sale, so the owner depends entirely on that letter. If it is silent, the lender can keep a right to pursue a deficiency. If you are the homeowner, have a New York closing attorney or a HUD-approved housing counselor read the release language back to you before you sit down for the acknowledgment.
The deed, then the record. With the letter in hand, the seller’s counsel prepares a New York deed – most commonly a bargain and sale deed with covenant – the buyer’s counsel prepares the buyer’s side, and the transfer report (the RP-5217) gets completed. The deed is acknowledged, the RP-5217 is filed, the transfer tax is paid, and the package goes to the county clerk (or the NYC City Register, where ACRIS handles the recording). That recording is what makes the transfer good against the world.
The Deed In Lieu: Fewer People, Same Hinge, Bigger Stakes on the Release
A deed in lieu is quieter than a short sale, and that quiet is where the problems hide.
There is no buyer, no lender-approval contingency, and no third-party closing. The homeowner and the mortgagee agree that the owner hands the bank the deed and the bank hands the owner a release – sometimes called a deed-in-lieu agreement – that discharges the mortgage and, ideally, the remaining balance. The owner’s signature on the deed is acknowledged before a notary, exactly as in a short sale. What changes is what the release must accomplish, and two things I always flag:
The junior liens. A homeowner rarely owes only the first mortgage. There is often a home-equity line, a second mortgage, or a mechanic’s lien from a contractor paid late. A deed in lieu that transfers title to the first mortgagee does not, by itself, wipe out those junior interests. Unless each junior holder signs a quitclaim or release at or before the conveyance, the title the bank walks away with is still encumbered, and the owner’s “clean exit” was not clean. If you are the homeowner, get a title search before you agree to the deed, not after.
The release again. A short sale has a buyer paying, so the owner has leverage. A deed in lieu has the bank paying nothing in cash – it is paying with the gap. The value of the whole exit lives or dies on the words in that release. Same rule as the short sale: get the release language confirmed in writing by counsel. And because it is a transfer “to” the mortgagee, every owner on the title – and the spouse, if the home is marital property in New York – must execute the deed. More on that below.
The Deed Itself: What New York Actually Asks You to Sign
Now the center of the file. Everything above funnels into one document with one notary block, so let me try to be precise about what New York expects.
The form. The standard New York transfer between an unrelated seller and buyer is the bargain and sale deed with covenant (Real Property Law Article 9, Section 247). It conveys the estate the grantor owns, and it carries a covenant against the grantor’s own acts – meaning the seller warrants that they did not, between signing and recording, do something to spoil the buyer’s title. It is not as broad as a full warranty deed, and for a clean conveyance it is the workhorse. In a short sale and a deed in lieu this is almost always the instrument you will see.
Who signs. The grantor – the seller, the homeowner, the party giving the property – signs and acknowledges. In a short sale the grantor is the owner; in a deed in lieu the grantor is still the owner, even though the bank is the one “receiving.” The notary is only concerned with the party transferring the property; the buyer’s signature is generally not the act that gets recorded.
Every owner, and the spouse. If the title shows two owners – a married couple, siblings, a partnership, a husband and a non-title-holding spouse in a community of ownership – every person on the title must sign the deed, and the acknowledgment must cover each of them. This is where so many closings stall: the primary borrower signs, but the co-borrower or the non-titled spouse is left out, and the deed comes back from the recording office for a re-acknowledgment. In New York, if the home is marital property, the bargain and sale deed requires the spouse’s signature even where the title is in one name alone. I do not decide that for you – your closing attorney does – but as the notary I am the one who will notice the blank second line, and I will stop the session rather than acknowledge a deed that the recording office will reject.
No witnesses, in New York. New York deeds are not “witnessed” the way some other states require. The grantor’s signature is acknowledged before a notary, full stop. One witness is a rarely used statutory substitute; the acknowledgment is the standard path and the one I take. So if the deed in your hand has three signature lines and says “witnessed,” you are looking at the wrong instrument, and we should stop and check before anyone signs.
The RP-5217 is not a notarized document. This trips up clients every single time. The Real Property Transfer Report (RP-5217) is the form you file with the deed that tells the recording office the price, the names, whether there is a new or an existing mortgage, and who pays the transfer tax. It is signed under penalty of perjury by both the buyer and the seller – not by agents, not by attorneys, the actual parties. The NYS form instructions are explicit: “The Law requires the signature of the buyer and the seller and NOT agents to the transfer.” So the seller actually has two signature events in a short sale closing: the notarized deed acknowledgment (my job), and then the perjury-signed RP-5217 (a separate act, not a notarial act). In New York City the buyer files the RP-5217-NYC with the City Register through ACRIS; elsewhere it goes to the county clerk. My job is to confirm it is present, complete, and matches the deed – because the transfer tax is computed off the price on that report, and a mismatched price is a tax mismatch the office will bounce.
What I Actually Do in a Remote Session
A New York RON session is a live, recorded, audio-visual session between the notary and the signer. The notary verifies the signer’s identity and confirms the signer understands the act and is signing voluntarily – and in a short-sale file I also want to be sure the signer knows what a deed is doing, because these are often people under real pressure. Then, on camera, the signer signs the deed, and I administer the acknowledgment – the formal declaration that the signer is the person named in the deed and signed it for the stated purpose. The session, the identity proof, and the acknowledgment are captured on a recording I retain (for at least ten years), and the completed deed with the notarial certificate is what the attorney or title company takes to the recording office. Two practical consequences:
Each signer is a separate act, and a separate fee. New York’s RON fee is $25 per act. One owner, one acknowledgment, one act, $25. Two owners on the title (a married couple, two co-borrowers) each have to acknowledge their own signature, so that is two acts and $50. The fee scales with the number of signers and the number of documents, not with the length of the deed. Do not let anyone quote you one number for a two-person short-sale closing.
The notary must be in New York. The signer may be anywhere. Under New York’s RON law (Executive Law Article 13-A, Section 135-c), the notary is physically in New York at the moment of the act, and the signer can be out of state or even abroad. That is the whole point of the medium, and it is what makes a short-sale closing that has a buyer in Connecticut or a relocated homeowner in Florida straightforward. I do, however, have to be able to hold a clean audio-visual session and a reliable ID – which is why I never run a deed over a channel the signer is calling from a moving car.
The Three Places These Files Stall
These are the notarial failure modes I watch for, and all three are fixable before they cost a closing.
One, the missing co-signer. Title shows two owners; the deed has one signature. The recording office rejects it, the date slips, the lender’s approval letter – remember the deadline in it? – quietly expires, and the whole short-sale file has to be re-underwritten. The fix is a two-minute title check at the start of the session: match the deed’s grantor block to the title, and if there is a second line that is blank, stop.
Two, waiver mistaken for release. The homeowner signs believing the gap is forgiven, but the approval letter only waived a right, or did not address the gap at all. The deed records fine, the house rolls out, and six months later a deficiency claim shows up. The fix is the sentence I keep handing you: get the release language confirmed in writing before the acknowledgment, not after.
Three, the junior lien that was never released (deed in lieu). A first-mortgage deed-in-lieu transfers title to the bank, but a home-equity line or a mechanic’s lien is still alive underneath it. The bank’s counsel should be catching this in title, and the owner should be handing each junior holder a quitclaim at the same signing. If you are the homeowner, do not treat “the bank said it is fine” as a release of a third party’s lien. It is not.
And a small, often-missed fourth: the RP-5217 price does not match the deed consideration. The transfer tax is off that report. A mismatched figure bounces the filing at the county clerk, and in a short sale where the price is already a discount the tax math is something I am happy to sanity-check against the deed before anyone records.
Frequently Asked Questions
Can a short-sale deed be acknowledged in a Remote Online Notarization session? Yes, in New York. A short-sale deed is an ordinary acknowledged deed, and the notary must be in New York while the signer can be anywhere. This is one of the files where RON genuinely helps, because the buyer or the seller is often out of state.
Does the buyer in a short sale need a notary? Generally no. The buyer’s interest is protected by the deed and by the recording, and the buyer’s signature is not the act that gets recorded. If your title company wants a notarized buyer acknowledgment for its own file, that is its choice and it is a separate act.
Does the deed have to be recorded? Yes. Recording with the county clerk (or the NYC City Register through ACRIS) is what makes the transfer good against later buyers and lienholders. An unrecorded deed protects the parties to it, not the world. In New York a deed is recorded once, by the grantor’s side – do not try to record the same deed twice.
What if the seller’s lender is the same bank that is the notary’s bank? That is the “interested notary” question, and it is real. A notary may not acknowledge a document in which they hold a beneficial interest. If the notary has a personal or ownership stake in the closing, the acknowledgment should come from a notary who does not. This is why, in a deed in lieu where the mortgagee’s own staff hold commissions, a neutral remote notary is usually the cleanest choice.
Who signs the RP-5217 – the notary? No. The RP-5217 is signed under penalty of perjury by the party the form requires (in New York City, the buyer files the RP-5217-NYC). The notary’s job is to confirm the report is present, complete, and consistent with the deed.
What does the notary charge for a two-owner short sale? Two acknowledgments, two acts, $50 under New York’s RON fee schedule (Executive Law Section 136), plus any disclosed service charge for scheduling or travel of the notary, which is not part of the statutory fee.
Final Thoughts: One Hinge, Many Doors
A short sale, a deed in lieu, and a foreclosure are three different doors out of a house you can no longer carry, and each one is built around the same hinge: a New York deed that is properly signed by every owner, properly acknowledged before a New York notary, paired with a complete RP-5217, and actually recorded. My job is the hinge, and it is a satisfying one, because it is the piece that does not forgive a missing signature.
If you are anywhere in this file – the homeowner who owes more than the house is worth, the buyer who has just heard the word “short sale,” the lender’s counsel trying to hold a deadline – my invitation is simple. Before anyone signs, put the deed’s grantor block next to the title, read the release language in your approval letter once, out loud, and make sure the RP-5217 price matches. Do those three things and the house is ready to roll out. Skip any of them and you are one rejected filing away from re-underwriting a file that took a quarter to build.
Disclaimer: This post is for general informational purposes only and is not legal, tax, or financial advice. Consult a New York attorney, a HUD-approved housing counselor, or your closing agent about the specific terms of your transaction before signing any document.