The Lender Don't Give Squat About The Deficiency Language In Your Purchase Contract

Hi Bryant,

I am looking for techniques for obtaining Waivers of Deficiencies.  I noticed that you have commented on this issue in the CDPE forums.

I recently listened to an interview and from what I can recall, the silver bullet was to put a rider on the purchase and sale contract which allows the seller the option to cancel the contract in the event that a Waiver of Deficiency can not be obtained.

My first thought was this was pointless, as the seller's lender is not a party to the sales contract.  He went on to explain, however, that the rider serves as an effective tool with which to threaten the lender during the negotiation process, and that he had a lot of success with the technique.

Any thoughts on this technique?  Any other effective techniques to obtain a waiver?

My thoughts:

Most short sale contract contingencies give the seller the right to cancel the contract if the terms of the short sale are not agreeable. So there certainly needs to be something in the contract related to this. However, it will have ZERO effect on whether or not the lender gives a Deficiency Waiver. This is a technique taught by people that don't actually negotiate short sales :)

The way  to get a deficiency waiver is to just ask the lender. And start asking when you submit the Short Sale. It should be in your cover letter and then in every correspondence thereafter. If the lender says "no" then your next question is "What does the borrower need to do to get the full Waiver of Deficiency?" Usually the answer will be for the seller/borrower to make a cash contribution, sign a promissory note or both.

Negotiate as hard as you can. But even then some lender/investors will NOT place a Waiver of Deficiency in writing. If that happens the borrower just needs to make a decision whether or not to go through with the Short Sale or be foreclosed on. By the way, if the Seller decides to file a Bankruptcy they will STILL be foreclosed on.

But just because they won't put it in writing certainly doesn't mean they will spend time and money in the future to go back in front of a judge to get a judgment. My guess is few lenders will do this unless the Short Sale was not done in Good Faith.

A Deficiency Judgment may be more of a fear than a reality. I personally did Short Sales in 2010 on 2 properties I owned. BofA would not give me a Deficiency Waiver. I closed anyway. 6 months after closing I received letters in the mail forgiving the debt and waiving all rights to a deficiency.

Fannie, Freddie, BofA, HUD, HAFA, VA are all good bets that a deficiency will never be pursued if the short sale was done on good faith*****. 

*****Of course I am not an Attorney nor do i play one on TV. Folks need to seek legal advice on this very important issue.

 

Do NOT be foreclosed on! Avoid foreclosure. Short Sales DO close.

Want to find out more? www.CentralFloridaShortSales.com

***I am NOT an Attorney nor do I play one on TV. Click the button below for my Bio.

 

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