Replies to This Discussion

Permalink Reply by Mike Linkenauger on March 6, 2010 at 9:21am

I'm not sure I've ever had a lender just release the debt without receiving some kind of compensation. I'm with you that we should push for forgiveness, which is usually spelled out clearly in approvals. Not an attorney, but I would say that since it has the verbage that the seller may have tax liabilities to address, could imply that the debt would be forgiven.

I can't believe personally that they were that "vague" with the words in the letter!! I haven't had that happen before. Welcome to the site Paul! Look forward to having you here more!

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Permalink Reply by JP Ott on March 6, 2010 at 11:43am

Paul,

To my knowledge there is only 3 options with a short sale. The bank will for give the deficiency, the bank will not forgive it and immediately ask for a promisary note, or they will not forgive it and not ask for a note before closing. I know that is pretty obvious...my main point is I have never seen a bank ask for repayment without letting everyone know upfront that there would be a promisary note. Maybe they are trying to get a prom note signed before the new short sale guidelines go into effect (April 5th). I don't know. Does anyone else have any thoughts on this?

JP

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Permalink Reply by Sara Mehrpouyan Los Angeles CDPE on March 7, 2010 at 12:04am

If the sellers cannot pay or settle the deficiencies then won't the lender just issue them a 1099C? I'm sure the seconds will attempt to collect anything that they can. I hear B of A has a recovery dept that contacts the sellers after short sales to make "arrangements". Aren't 2nds contacting the borrowers either way- after a short sale or foreclosure?

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Permalink Reply by Paul Antonelli on March 7, 2010 at 8:28am

Actually the only way for a seller / borrower to get rid of the obligation would be to wait until the bank files for suit then they can file for bankruptcy. The bank won’t just go away and they won’t just issue a 1099. They look at it as money they can recover. They will eventually turn it over to a collection company. I have been told by banks in second position a few times now, “Why would we settle for $5000 from the borrower when we can sell it to a collection company for $15000?”

Sara Mehrpouyan CDPE said:

If the sellers cannot pay or settle the deficiencies then won't the lender just issue them a 1099C? I'm sure the seconds will attempt to collect anything that they can. I hear B of A has a recovery dept that contacts the sellers after short sales to make "arrangements". Aren't 2nds contacting the borrowers either way- after a short sale or foreclosure?

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Permalink Reply by Sara Mehrpouyan Los Angeles CDPE on March 8, 2010 at 12:47am

What about deficiency judgements on 1st loans that were short? Any heard of anything going on after short sale closed?

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Permalink Reply by Joseph C. Alfe on March 8, 2010 at 1:32am

Paul,

This is why you should never present a Short Sale approval to a seller. They are legal documents that should be presented by an Attorney. You should also know that many larger lenders, like BOA, will never, ever waive deficiency. They cannot, because they have many investors who actually own the paper. If the sellers don't want to agree, then remarketing the property will just put you and them in the same spot. Keep in mind that a promissory note is not always a bad deal, especially if someone wants to preserve their credit. Look at it this way, would you rather be on the hook for the full amount of the mortgage plus legal fees and interest (which is what you will owe if there is a foreclosure or DIL) or would you rather have a 100K deficiency, negotiated down to a 20K note at 0% over 20 years to save your credit?

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Permalink Reply by Paul Antonelli on March 8, 2010 at 7:27am

I disagree on you writing about banks not waive the deficiency. I have had BOA remove the deficiency three times in the past several months. I simply tell them that I will not allow the seller to sign unless we get a 1099C. If they say no then I tell them we have no approval until then and remarket the property. Once I get a new offer and submit it to a supervisor, I usually get the 1099C. In other cases when the bank does not want to play (like Wachovia or HSBC) I have our attorney submit the new offer. So, YES, you can get the deficiency waived, you just can’t stop negotiating. Remember it’s not over until the last page is signed and keys are exchanged.

Joseph C. Alfe said:

Paul,

This is why you should never present a Short Sale approval to a seller. They are legal documents that should be presented by an Attorney. You should also know that many larger lenders, like BOA, will never, ever waive deficiency. They cannot, because they have many investors who actually own the paper. If the sellers don't want to agree, then remarketing the property will just put you and them in the same spot. Keep in mind that a promissory note is not always a bad deal, especially if someone wants to preserve their credit. Look at it this way, would you rather be on the hook for the full amount of the mortgage plus legal fees and interest (which is what you will owe if there is a foreclosure or DIL) or would you rather have a 100K deficiency, negotiated down to a 20K note at 0% over 20 years to save your credit?

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Permalink Reply by Paul Antonelli on March 8, 2010 at 7:33am

Yes, there was a big story on CNN last month about it and it was then covered on all the finance pages of Yahoo and Google. You will have to search for it. The title was Banks going after homeowners, I think. I find that in the last two years of helping homeowners in trouble I am watching more of CNBC, MSNBC & CNN financial news.

Sara Mehrpouyan CDPE said:

What about deficiency judgements on 1st loans that were short? Any heard of anything going on after short sale closed?

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Permalink Reply by Gary De Pury on March 8, 2010 at 6:45pm

The mortgage is already secured by the note, the banks don't have to ask for a promissory note if they intend to collect on the original note.

The Promissory note may be used when the primary wants to collect on some of what they are giving up, but for a secondary lender to ask for a 10K Prom on a 50K note is crazy. The 10K Prom would abrogate the 50K note and then if they filed suit, they would be limited to the 10K. They would rather wait a few years and sue for the 50K.

In order to best protect yourself, make sure that the sellers know (and sign) that they are aware that the bank could come calling within the statute of limitations.

JMTC,

Gary De Pury
Broker-Owner
Bay Vista Realty
Tampa

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Permalink Reply by Joseph C. Alfe on March 8, 2010 at 8:26pm

Paul,
I see that you are in Florida. While Florida is technically a deficiency state, the lender must go through a legal process and petition the court to collect a deficiency, which Florida judges are loathe to do. Therefore, it is much easier to get a deficiency waived in Florida. In Illinois, and many other states, it is simply not an option. This is a good lesson in that we have to be cognizant of our particular states rules regarding short sales.

Joe

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Permalink Reply by KRISMAS ADAMS on March 10, 2010 at 7:18pm

When I was decisioning short sales for Freddie Mac they just recently started asking the seller for contributions. They would be put on the HUD in the 400 section as a Seller Contribution just under the sales price and be added to the total price. If they couldn't they were required to send a letter as to why they couldn't contribute. They are more and more wanting make the sellers held accountable for all or part of it.

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Permalink Reply by Kara Schmidt on March 11, 2010 at 2:44pm

Joe,

After just becoming a member of this site, you seem to stand out among the rest as an extremely knowledgable individual in dealing with short sales. As a newer agent and even newer to short sales, can you point me in a direction to seek my states particular rule regarding short sales?

Joseph C. Alfe said:

Paul,
I see that you are in Florida. While Florida is technically a deficiency state, the lender must go through a legal process and petition the court to collect a deficiency, which Florida judges are loathe to do. Therefore, it is much easier to get a deficiency waived in Florida. In Illinois, and many other states, it is simply not an option. This is a good lesson in that we have to be cognizant of our particular states rules regarding short sales.

Joe

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