How to get rid of a promissory note after a short sale

A lot of people have been required to sign a promissory note as a condition to the lender approving a short sale.

 

The promissory notes are usually for a small to moderate percentage of the deficiency balance, paid over ten (10) years, with no interest.  The promissory note requirement is usually a good deal, and see my other articles on this subject concerning predicting when a promissory note will be required.

 

 

 

However, many homeowners are in severe financial distress, and the thought of having another payment following the short sale is not a happy one!

 

Most borrowers after a short sale need to find a place to rent, and another payment on top of rent might often push the borrowers over the edge.  It is often the case that a short sale falls through simply because the borrower rejects the idea of a promissory note.

 

 

 

However, do not despair!  There is a way out of it.

 

Your seller may only have to make the promissory note payments for a year, or even less.

 

Why?  Because after the file is closed and the new loan (promissory note) has been set up for collections, a short time is required for the lender to see that the borrower makes faithful payments.  If so, then about a year out (often as soon as immediately, depending upon the lender), the borrower can seek to settle the debt for a fraction of what is owed.

 

"But for how much?" you might ask.  Almost any lender will settle a promissory note for 80%, without hesitation.  60% takes some discussion and effort to convince them, but many will do it.  To settle the debt for 50% may require financial distress on the part of the borrower, with low income and difficult circumstances. 

 

The best way is to go to a lawyer and have the lawyer draft a letter and fax it to the lender's customer service department (collections), with a copy to the lender's bankruptcy department.  The lawyer can state that the borrowers have come to him to discuss the promissory note obligation, and their difficulty paying it.  They are considering bankruptcy, but this promissory note is the only issue causing that consideration.  The lawyer then makes an offer for 10%-30% depending upon the borrowers' financial condition.

 

In my law practice, we often contacted various creditors when the clients did not really need a bankruptcy, but did need relief.  10%-30% was often the amount for which the lenders would settle.  However, it was often the case that my being an attorney was the instrument that got them to agree.  Why?  Because the lenders know we are serious.

 

Best wishes,

 

Ken Lawson, JD

TheLawsonGroup Mediation Services