O.K., so after months of submitting paperwork, etc. the mortgage insurance company approves the short sale but says seller must either kick-in $6K at closing or to sign a 10-year note for $12K & make monthly payments. The property is basically selling at market value, but M.I. says that  they are being reasonable because seller earns too much money.

Seller however claims he is debt even though his salary is relatively high and stubbornly refuses to make the $6K contribution and/or sign a note.

Lender already obtained a foreclosure judgment against seller and the property & the property is scheduled for sheriff's sale unless I can close the short sale.

Seller's lawyer says lenders "rarely" pursue deficiency judgments which may be true. However, I'm thinking they can still sell that judgment for pennies on the dollar to a debt collector who in turn can pursue my seller if they feel seller can come up with the money.

If so this would make my seller client penny wise and pound foolish.

My seller doesn't otherwise seem to care if he has a foreclosure tarnishing his credit report vs. settling his debt by way of a short sale. (Wish I knew this before I got started).

Does anyone have any suggestions. Is anyone aware of recent lender trends and/or policies to pursue deficiency judgments? Thanks for your input.


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your seller is an idiot. 6K to settle deficiency is pennies on the dollar. Try to negotiate that amount down to 3-4K. If seller won't agree, get it from buyer. If you can't (there should be no reason) take it from commissions. This is why you tell sellers/buyers UP FRONT that they will be expected to bring extra cash to settle debt.
Thanks Joseph. I agree with what you say and seller knew up front that M.I. might very well request a contribution. What I apparently didn't know was seller's degree of stubborness. That being said how negotiable are these M.I. companies? Thanks.
RE: lenders selling the debt to collection agencies, I attended a short seminar a few weeks ago and the speaker said that yes, indeed, all the lenders are, in fact, selling the 2nds to collection agencies, which then have 5 years to collect the debt. He said they will wait until the day before the expiration and then file against the consumer, who will lose every time. This is a very scary thing that is not really going to show up for awhile. so we need to find out more about this and be very careful of the advice we are giving - or not giving. California is a non-recourses state, but only on personal residences, and also, not on re-fi's, as I understand it. The collection companies are really getting into the game of buying the debt from the banks, and another whole nightmare is around the corner.
actually this is starting to taper off. Collection agencies were paying lenders 10-30 cents on the dollar for promissory notes. They are now refusing to buy them or offering very little because no one is paying the promissory notes. It now makes more sense for the lender to write off the loss and issue a 1099-C. I have had several instances this year where clients who signed notes were advised that they were charged off and relieved of debt (My opinion is that the lender failed to sell the note)

Joesph,  just for the sake of clarification charge off and forgiveness of debt are two quite different things lest the reader become confused and see the two terms as one and the same .

Charge off in itself does NOT prevent further collection activity or even suit.



you are correct, but in this case the seller received a 1099.
Thanks Maggie & Joseph for your insights. My inclination is to err on the side of caution and, like any of us would do, figure how to best protect our clients. Everyday in this business is a new day bring about changes. Stay well!
And you may need the help of a foreclosure lawyer for that issue as I say so.



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