Wow! It seems strange that a bank or any other creditor for that matter would waste their time beating a dead horse. For them to say it's just a formality for their investors, doesn't seem to give the investors any real recourse, so why even print it? In fact, it would seem they would try to use that clause just to sell the "dead horses" to an even more desperate collecting agency.

Walter,

Your comment on this blog has got me wondering.... in the second bullet comment about the Recovery Act, you mention that the homeowner must be living in the home at the time of sale to qualify for tax exemption on forgiven debt in a short sale. As I understood things, The Mortgage Forgiveness Debt Relief Act exempts taxes on a principal residence related cancellation of debt and the IRS does not necessarily define a principal residence as one that is being occupied by the owner at the time of the cancellation of debt (or whatever scenario needs to apply this definition- capital gain exemption of certain amounts on the sale of a property for example, can be avoided if the home is lived in two out of the past 5 years preceding the sale). Please clarify this for me someone, as I am going through a short sale right now but not living in the home (however I would consider it my principal residence).

I believe the confusion here is that to qualify for a refinance in the 2008 Recovery Act, it has to be on an "owner-occupied principal residence" 
Please anyone who knows about this confirm???

I'm a bankruptcy attorney, and I can tell you a short sale is NOT always the best option. Further, Bank of America's letter is not confusing. It has a lien on any houses that it gave borrowers mortgages on preventing any such houses from being sold unless the bank either gets paid in full or agrees to a short sale. In the letter Bank of America is saying that it is agreeing to allow a short sale and give up it's rights as a lien holder (e.g. prevent the sale of the house without getting paid in full). It, however, is not giving up it's right to pursue the deficiency balance after the sale is completed. 

It is true, banks holding a first mortgage typically do not pursue deficiency judgements. The questions remains though, are the banks going to sell the debt to third party collection agencies that have every motivation to pursue the deficiency balance? If they do, the short sale might hurt many borrowers because owning the house might help them be able to file Chapter 7 Bankruptcy, where once they give the house up they might not be eligible to file Chapter 7 Bankruptcy. Further, if the borrower lets the house foreclose he can live in the house rent free for sometimes longer then a year. Going the short sale route potentially will cost the borrower thousands that could be saved living in the house free, and the ability to file Chapter 7. That means the borrower has exposed themselves to having twenty five percent of their wages garnished or having to file a painful Chapter 13 Bankruptcy which goes on for three to five years.

In some states, like Michigan, a collection agency has up to seven years to sue for the deficiency balance. It can list that money owed on a credit report for seven years. That would mean essentially no credit building while that is on the report. Further, in Michigan once the creditor sues, it has up to twenty years to collect it. That is a lot of time to be looking over your solider. 

PS:

What would be real helpful is finding a few people who live in States like Michigan who have agreed to such short sales and where the Bank retains the right to sue. Specifically, how doe the Bank hand the collection of the deficiency afterwards. Does it sell the debt to a third party collection agency? Is the debt listed on the credit report?