Recently we received the following memo from our coroporate office regarding deficiency judgments on short sales, more specifically as they relate to Freddie Mac loans. Below is a copy of the memo:
Recently we have received many questions regarding the servicers refusal to remove language regarding the servicers right to pursue a deficiency judgment after the short sale closes.
It is important to remember that there are two different categories of Short Sales; those that are HAFA and those that are not HAFA.
HAFA Short Sales have specific rules and regulations and all of the HAFA programs (Treasury, Fannie Mae and Freddie Mac) require the investor to waive all rights to seek a deficiency judgment and may not require the borrower to sign a promissory note for the deficiency.
Non-HAFA transactions do not have these built in protections for the seller and we are starting to see, in the case of FREDDIE MAC loans, language in the Short Sale Agreement Letter that reserves the right for FREDDIE MAC to pursue a deficiency judgment for any loans insured by FREDDIE MAC or where FREDDIE MAC is the direct lender.
We have contacted NAR and according to a NAR administrator, FREDDIE MAC has issued a policy directive to servicers to insure that language is in the short sale agreement letter that reserves the right for FREDDIEMAC to pursue a deficiency judgment for any loans that FREDDIE MAC insures or is the direct lender. It appears this point is non-negotiable. It is important to note however, this policy DOES NOT include FREDDIE MAC HAFA short sales. Please note the following comments from NAR:
“We have confirmed with Freddie that they do reserve the right to pursue a deficiency judgment, but their practice is definitely not to do so assuming the short sale is in good faith and no misrepresentation or fraud is discovered after sale. While I recognize this is not much comfort to the seller, there is considerable concern about strategic default by borrowers who have the assets and/or income to pay their mortgages, not to mention some actual fraud”.
If you or someone you know is need of advice regarding short sales please contact us.
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