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Negotiated Payback or Foreclosure Judgment Deficiency? Compared

I was negotiating on a very large problem mortgage today with a high-up executive at the servicing firm. He made a comment that I thought peculiar and I called him to task on the matter.

The comment was that "after the foreclosure sale, lenders seldom bother to get a court ordered deficiency judgment". I knew this to be false, because lenders today - more than in the past - are investing a few hundred more in attorney fees to get a deficiency judgment. I will tell you why.

But first, lets all get on the same page. A deficiency judgment is obtained when a property is foreclosed and sold (usually at the courthouse by the clerk of the court) to the highest bidder. In most states a "deficiency" judgment can be obtained for the difference between the high bid and the higher foreclosure judgment amount. Usually the court determines which value is higher, the high bid or the appraised value of the property on the date of the public sale, and the higher of the two is taken to determine the difference from the judgment amount, and this difference is the deficiency judgment.

Ok, back to the discussion. Deficiency judgments are just that - judgments. They are a pain in the neck to the debtor and can only be removed by paying it off or by bankruptcy. Further, money judgments usually earn interest until paid. In Florida right now that rate is 11% a year - better than the bank by far!

Now the bank that gets the deficiency judgment might have said that they seldom enforce a deficiency judgment. They are right. They sell the judgments for 5 to 10 cents on the dollar. So for a $100,000 deficiency judgment they invest $500 in attorney fees and get $10,000 in return just for pushing paper.

The problem with a money judgment, which is just what a deficiency judgment is, is that it won't allow you to buy anything on credit! New house? Forget it. New car? Forget it. You want to sell a house? You got to pay off the judgment (there are some exceptions to this rule).

So the question then can be brought over to unsecured promissory notes on short sale shortages. Yes, the banks do the same thing. They get about 5 cents on the dollar.

The executive on the phone laughed and told me I was right - both in the concept and in the pricing and that his firm helps companies that hold these packaged notes collect them from the borrowers.

There is a lot of discussion about how a short sale vs. foreclosure affects a FICO score. Frankly, even if it were the same, the differences in having a deficiency money judgment and a negotiated note are HUGE differences and that alone should settle the dispute.

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide! Shortsales@Florida-Counsel.com New Website www.Florida-Counsel.com.

See our easy to understand articles at:

TABLE OF CONTENTS - SHORT SALE AND LOAN MODIFICATION ARTICLES

Posted by Richard Zaretsky, Florida Real Estate Attorney on 03/06/2008 08:52 PM

Comments (57)

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57 Comments on Negotiated Payback or Foreclosure Judgment Deficiency? Compared

MAR

2008

This is a great blog!! Really good information, I have a friend that has had income tax refund witheld for 2 years because of his foreclosure. I really have not seen an exception on the judgemnt from an underwriter, if you know of a lender that will allow this exception, please let me know.

I haven't originated any FHA in 2 years, but have one in the pipeline right now. I am wondering if FHA will allow these types of judgements, depending on the size of the dollar amount, to slide.

Thanks again for the informative blog!!

MAR

2008

Julie

Money Judgments in most jurisdictions (once properly filed in the public records) act as a lien on real estate owned by the person against whom the property is owned. A bank can make a loan inspite of the judgment only on property that is being acquired with the proceeds of the new mortgage (this is called a Purchase Money Mortgage) provided ALL of the loan proceeds are going for the purchase (ie: no money back to the borrower). But a refinance is out of the question, unless the money judgment is paid off.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 RPZ99@FLORIDA-COUNSEL.COM - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales

To many that have emailed me - You ask about how the PMI company gets into the mix on a short sale, and whether a BPO can be used to establish value at the time of the foreclosure sale by the judge.

First as to PMI. The MI company is usually guarantying the top 20% of the first mortgage. As such, in a short sale they must be a player. What many confuse as reluctance on the part of the lender is actually deferal to the MI for some arrangement on shorting the mortgage. As with all other aspects of the lending and foreclosing process, it is a matter of economics. Say the top 20% is $100,000 (on a $500,000 loan). The lender approved re-value is $275,000. In this case the MI is toast - there is no way they can get out of liability so they will fold and allow the sale to go through since their liabiity is certain. But make the re-value $400,000. Now it is decision time - a 10% swing in values means a lot of money (percentage wise) to the MI. Here the MI must determine, along with its insured (the lender) some compromise other than payout of the whole $100,000 of insurance.

On the BPO being accepted by the court. My experience is no, it is not per se. A report is not what is accepted - it is an opinion usually given by testimony (oral evidence) and can be but need not necessarily be accompanied by a written report, by a person the court is convinced by the lender is an expert on valuations of real property of the appropriate type in the community where the court sits. The person is what you call an "expert witness" on valuation. Usually such experts prepare at least the back up material for an appraisal in preparing for their testimony and coming up with an opinion.

Hope this helps.

MAR

2008

Richard, I understand about the deficiency problem with the foreclosure, but how about a Deed-in-lieu instead? In that case, are not the deficiency judgments normally waived? Wendy

MAR

2008

Very informative post, thank you for sharing and the extra effort.

MAR

2008

Richard,

Does the seller have any right if they have had a short sale offer that was clearly in the interest of the bank but the bank said no then foreclosed and filed for the deficiency judgement?

How can I politly tell the bank my client (single agent) will fight back?

We need to talk, I need to get better legal support for my clients. I'm meeting with a title company this morning at 9am in Tradition.

Great post Richard.

But I have a question… is it true that lenders may NOT seek a deficiency judgment if it’s a non-judicial foreclosure?

Brian -

Great question and observation!

Like I said in my Trilogy article, the buyer, seller and lender must all agree.

IF the buyer and seller agree and the lender refuses and forces the loan to foreclosure, then, if the short sale contract was higher than the foreclosure sale (or the appraisal of the property at the time of the foreclosure sale, whichever is higher), the borrower should use the documentary evidence of the refusal of the lender to accept the short sale contract and mitigate the lender's damages as a basis for the court to either reduce the amount that would be the deficiency or refuse the deficiency altogether.

You need an attorney to pull this off in court and it needs to be well documented in the refusal to accept the short sale offer.

MAY

2008

I have an approved short sale contract on a personally owned condo that is supposed to settle May 30, 2008. We paid $440,000 in 2006 and have a mortgage balance of $341,000. I was able to get $270,000 (no commissions will be paid--my client is buyer) which is $10,000 under the bank's appraised value. This was new construction in Florida.

We lived very briefly in the condo because of sub-standard construction. I am the current president of the condo HOA and the HOA is filing a defect lawsuit against the builder.

The lender, Chase, will not tell me if there will be a deficiency judgment filed against us after the closing (don't they have to disclose this prior to closing?). My other questions are:

would we be better off doing a Deed in Lieu of Foreclosure (this was an option offered by Chase)?
if the answer is yes to the D-I-L, will Chase be able to file a deficiency judgment?

JUN

2008

I gave a $10,000 equity loan to a client, and secured it with a mortgage on a home that she does not owner-occupy in Lee county, Florida (where I reside). Since her last monthly payment for the month of April/07, she has stopped making the required monthly payment (currently 14 months past-due). The 1st mortgage lender Deutsche Bank has served me an "interested party" notice of "foreclosure hearing" on behalf of Deutsche Bank in care of their attorney (Kim Stevens/Law Offices of David Stern) and heared by Judge Lynn Gerald, Jr. this coming Friday 6/13/08 at 8:30am ... http://www.leeclerk.org/Criminal_detail_new.asp?CsNum=07-CA-010701&CsType=CA%20Mortgage%20Foreclosure

Questions:

1. Is there a statute of limitations as to when I can file for a deficiency judgement?

2. Can you recommend a procedure to find a suitable attorney close to my personal residence?

Terramar -

I don't recommend anyone for your issue -- you were served with a complaint in September which means it has been about a year since you paid your mortgage. You did not answer the complaint - or at least it seems that way since defaults were taken against most defendants. You probably will waste you money trying to defend now - but better late than never - there could be something amiss in the case that an expert real estate foreclosure attorney could find.

If you want representation then you need to contact someone immediately. A quick search online showed someone that seems to be competent - Charles PT Phoenix, Telephone: 239-461-0101
Fax: 239-461-0083. You can search the www.flabar.org website for a certified real estate attorney in Ft. Myers and that would be good too.

As to your question - the statute of limitations to sue on the deficiency would be 5 years (in Florida). However that time period could be decreased if there was no activity for a defeiency judgment taken within one year of the foreclosure sale, but you need to move to dismiss the action for inactivity under that rule and the court has to dismiss the action, for it to be that shorter time period.

Hope that Helps!

JUL

2008

Richard,

I am in a short sale negotiation right now where PMI wants my seller to sign a note for 50K. Is there anyway around this or are they bluffing when they tell me they will close the file if he does not accept or counter? I have 2 Cash offers on the table for 150K and 151K. Original loan amount owed is 283,050K

Jackie

Jackie -

My experience - they are not expecting a 50k note. They will settle for less. How much less is a function of the cash and earning and age of your borrower. I have often seen it go down to zero.

How do YOU negotiate? You can always come UP!

JUL

2008

Nice Article!! This might help with marketing:

BuilderBrokerNetwork.com is a new inexpensive way to market commercial real estate.

Compared to other sites it's a fraction of the cost at $60 a year.

Hope this was helpful.

SEP

2008

Here is a recent contact request that I thought would be of interest to you readers -

Exellent information.
Do I understand you to say a short sale allows me to to negotiate the deficiency judgement?
I have a 1st and 2nd refinance loan (some was cash out but not equity/heloc) and the 2nd is now unsecured.
Would a short sale help me lower a judgement in the event the lender bought thier own mortgage insurance?
Deutsche Bank owns both serviced by IndyMac.
I am way upside down and am now trying to short sale.
Would appreciate your input.
Thanks
Gene

My response:

Gene -

You have a little too much lack of understanding and you need to read more of my articles.

In a short sale there IS no deficiency judgment, there is a short fall. The amount is determined by the purchase price. How much of that short fall is still to be repaid to the bank is a matter of several factors but basically negotiation based on your ability to pay now or in the future.

PMI is not a factor, just another layer of negotiation.

I hope this explanation helps you.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 RPZ99@FLORIDA-COUNSEL.COM - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide! Shortsales@Florida-Counsel.com

JAN

Wondering if you have advice for this unusual situation . . . We have a FL primary residence with a first mortgage and an equity line (second). After we stopped making payments, both banks filed for foreclosure, but the bank with the second mortgage got a foreclosure judgment (with our encouragement). The court set two dates for the foreclosure sale; each time the bank had the court clerk postpone or cancel the sale date. At this point, the bank with the equity line has a judgment, but seems to not want to proceed with the sale. Most recently, they sent a fax saying they were "writing off" the loan. We have heard nothing from the first mortgage. We have moved out of state, and want closure. We have a decent appraisal that should eliminate or minimize any right to a deficiency judgment.

This is how I see your situation.

The second mortagee realized they were upside down and did not want the responsibility of the home so they did not have the foreclosure sale proceed (which would have given them the title to the house subject to the first mortgage).

The first mortgagee has not figured out what they want to do. They were hoping the 2nd mortgagee was stupid enough to pay them - but they did not. You say the value of the home is sufficient to pay the first mortgage - good luck!

The second mortgagee will sell the promissory note and the buyer of the note will seek to collect on it and get a money judgment against you. That is at least my prognosis. This event could take a year or so, but it will most likely happen. You will have the opportunity to negotiate with the investor but they will have so little invested they could take one of two options - take the quick buck for a big discount on the amount of the note (to be paid by you); or figure they have so little invested, they will just try to get the most from you as possible, no matter how long it takes.

Sorry about your situation.

JAN

I am confused....and I have been following a lot of comments here. Maybe it is stress related...and I am not thinking properly.

From what I have read ---- (and this is investment property I am speaking about here ) Is an unsecured promissary note for the balance due from the result of a short sale better off than a deficiency judgement in a foreclosure? In my short sale..... there is approximately $ 155,000 difference. In a foreclosure.....it will be a lot more $$$ than that.

Will someone please comment .......

I think I should explain further ! I owe $ 315,000 and have a lis pendens already. It was one of those interest only sub prime loans. I have been paying interest only for two years and had to stop payments as I cannot afford it any more. Payments were huge. I do have a short sale for what the lender appraised the property at which is $ 130,000. The buyer will pay cash $ 130,000. The lender mentioned to the listing agent that he wants me to pay $ 7,000 and then I don't know what will happen after that. This is as far as we have gotten. Do not have the approval letter yet or anything else.

so back to my question....regarding an unsecured promissary note and a deficiency judgement in a foreclosure. which is better ? go for the short sale and sign the promissary note.? are they negotiable down the road if I can't keep up the payments with the promissary note ? I don't even know how much yet if might be.

You need to be careful! One of the more current scenarios is for the loan negotiator for the mortgage servicer to make a demand for up front money with no promise as to what that is buying for you. We insist on a letter saying what the money is for. Otherwise it could just be a bonus for the servicer.

You need to read the accompanying article Foreclosure Deficiency Judgment Compared to Deed In Lieu and Short Sale Scenarios so you better understand what the pitfalls of a judgment can be.

JAN

Thank you Richard. Good advice on asking what the money I pay is for. Will keep you updated as to the status and the next step that happens....which should be soon I hope so I can end this nightmare and go on my life..... I think !

JAN

Susan,

I am also in same situation as yours -- don't know which one to select --- go for short sale with promisory note or leave it for foreclosure and deficiency judgement ---

My understandig is that if we have deficiency judgement, it will be removed by filing bankruptcy -- but with promisory note , it may not --

please let me know what you have decided......

defciiency judgement or sign promisory note on short sale ? which one is better ?

JAN

Bala and others -

This is a pretty simple question and often asked.

A negotiated promissory note is ALWAYS better than a deficiency judgment resulting from a foreclosure.

Deficiency Judgment -

1. You have a foreclosure judgment against you and if you fill out most applications about your background you will have a question on if you had a property foreclosed upon you.

2. You have a deficiency judgment which is a money judgment against you which means ANYTHING you buy is subject to attachment by the creditor, be it a car, a toaster, or a new swingset for your kids.

3. Your wages can be garnished.

4. Your bank accounts can be frozen and attached - without any notice in advance to you.

5. You will be subject to periodic depositions in aid of execution and have to provide copies of all of your financial matters - several times a year. If you don't show up the court can hold you in contempt and even put you in jail until you comply.

6. In Florida (check other states) you can enjoy each of the above for 20 full years before the judgment is no longer enforceable.

Negotiated Promissory Note -

1. You pay an agreed amount according to the promissory note, which is usually monthly.

2. If you no longer can pay you may be able to negotiate a new payment amount or abate payments for a period of time.

3. You may be able to re-negotiate the terms of the promissory note in the future.

4. The promissory note is not a judgment so it does not show up on the credit report.

5. If a foreclosure suit was entered, even if it went to a foreclosure judgment (but not a sale), the lender will likely dismiss the suit and vacate the judgment, clearing your record - even before you start paying on the promissory note.

6. If you stop paying on the promissory note the note holder can then seek a money judgment for the unpaid amount.

You mentioned bankruptcy and you need to understand that declaring bankruptcy is a LAST RESORT. In a chapter 13 you are effectively betting the farm that you can perform for the 5 or so years of payments. If you default you revert to either a dismissal or a chapter 7 - but you cannot refile for many years. Bankruptcy also is a final chapter so to speak. There are no further remedies available to you for protection from creditors. It is like one bullet in a pistol - you need to decide when is it absolutely, positively without any doubt necessary to pull the trigger. You need to expand your horizons to not just today, but tomorrow and maybe thousands of tomorrows (days) before you can walk back into bankruptcy court. Chapter 13 and Chapter 7 have their useful purposes but they must be used prudently and carefully.

If a promissory note just does not work out and the lender is relentless and THEN gets a judgment for payment of the note amounts, you will then be in no worse situation than if there was a deficiency judgment. In my opinion you will be in a better position if you wiegh the positive and negatives of each position and work your way slowly and methodically through the available remedies step by step. If at the end of the line it did not work out, then you have the bankruptcy alternative remedy. But without giving each step an opportunity to work for you makes no sense - don't throw your self overboard!

Richard - What about cases where short sale lenders release the lien, but in their approval letters state they "reserve the right" to recoup the rest of the monies owed - in an ambiguous way.

MY NEXT ARTICLE - WITH 3 OR 4 EXAMPLES -- IN THE WORKS!

JAN

well Richard

.....will anxiously await your 3 or 4 examples....but please post them quickly !

Bala -- I haven't decided anything yet as the lender .....we don't know what they are doing ! Last we heard is that they may want me to pay $ 7,000....(which obviously the listing agent is going to try and negotiate that lower if possible) ...and now communication with the lender is going nowhere ! PLUS...NOW THE BUYER IS TIRED OF WAITING FOR AN ANSWER FROM THE LENDER AND WANTS TO BACK OUT. its been 4 months since the lender has had the cash offer and for every month that goes by...the lender dings my credit report as a late payment plus my credit report says foreclosure initialized through all this communication with them. oh lord ..I want this nightmare to end

Richard -- on your lengthly comments on deficiency judgement vs. promissary note..... I am confused on # 5 in promissary note section. please explain that one a little better. why would there be a promissary note on a foreclosure judgement ?? And why are you saying the lender would likely dismiss the suit and vacate the judgement ? totally confusing to me....could be stress related and I don't know what I am doing or thinking..... look forward to your explanation of # 5.

FORECLOSURE DEFICIENCY JUDGMENT or SHORT SALE PROMISSORY NOTE or BANKRUPTCY? - REVISITED

Here is the link to the new article on this subject.

JAN

Thank you very much Richard ! you article helped me to decide --

Susan, -- my second lender is releasing the lien and wants to sign just a simple letter ( not Promisory note ) that says I am responsible for the remaining the balance -- which is around $150k -- i could never pay -- i have decided to sign the letter and do the short sale and think of bankruptcy later --

I hope you will find a new buyer and done with this houing stuff - -best of luck

JAN

Bala -- for now or I should say the next few days,,the buyer has decided to hang in there and see if the lender will make their decision. when you get your letter from your lender....please let me know. I would be most anxious to see what it says.....if I get mine done before you....will let you know too.

hang in there....

FEB

susan ,

i recived the letter -- it's 2 pages long -- short description is as follows:-

1st page says that I i am responsible for the remaining balance

2nd page title says -- "Customer Authorization to close Account" and requesting me to close the account .

I have to sign only on the second page and not on first. I am confused -- anyhow, I have decided to do short sale.

FEB

Susan,

after waiting for 4months with the bank, now bank approved but buyer cancelled his offer.

I have to look for new buyer soon --

Bala -- what a mess isn't this ? does the letter state how you are supposed to pay the remaining balance? does it mention payments ? sorry you lost your buyer.... oh dear. (Mine is still hanging in there but I don't know how much longer he will. ) I haven't gotten any paperwork yet as the listing agent is still negotiating with the lender and trying to keep the buyer in place. Should know something by the end of the week.

susan,

the paper dosen't say abt any payment plans -- is asked me to contact lender for future payments --

today my realtor dropped the house price again to attract new buyers -- again banks has to approve i thinkwith ne wprice -- what a headache !!!

FEB

Bala -- I guess now the whole thing is going to start over again when you get another buyer. I heard yesterday if the bank doesn't make a decision this week on my deal....my buyer is canceling.

I did a quick calculation....and on a payment plan of $ 150,000 back to the lender and at 1% interest over 15 years...the payments are approx. $ 897.00 a month ! oh my god....how are we supposed to pay this ?

oh my god....my boyfriend just received in the mail today a 1099 C (cancellation of debt) in the amount of $ 102,000 from his lender in his short sale that closed in December. He even paid 8,000 at closing as they asked him to do....and told him it was settled. He even got a satisfaction of lien and release stating it is paid in full. holy mackeral....now what is he going to do. This was not his primary residence.

cancellation of debt is fine if he lived in that house for 2 yrs -- otherwise he has to pay taxes i guess --

in our case ( even i have 150k ), i have decided to file bankruptcy in summer --so it will go away -- no way i can pay 150k -- i am consulting a lawyer next monday to ask him abt bankruptcy and what i have to do to file in summer -- i am moving to an apt in march first week-- u can reach me at bala_2000@hotmail.com --

Susan

Better check out my article at SELLERS ALWAYS HAVE INCOME FROM A SHORT SALE / DIL / AND MAYBE A FORECLOSURE

FEB

Thanks for the article Richard. Question -- If the VALUE of the debt on the 1099C is GREATER than the fair market value/appraisal ....is the debt still taxable ?

Susan -

What do you mean by VALUE? The 1099 amount is just that, an amount of dollars. It does not matter the value of the property.

The 1099C is the amount of debt that was cancelled by the reporting entity (lender) as forgiven debt. It has nothing to do with value of the property. It has only to do with the amount they were owed under the note and the amount they accepted as a final satisfaction of that note. 1099C's can be issued under secured or unsecred circumstances -- it has nothing to do with the real estate.

Richard,

Thaks u very much for your service.

I have a question.

My HELOC is 90 days past due and the account status is closed on my credit report ( but still they report).

Is it possible for them to get monetary judgement before foreclosure(I am trying for short sale -- looking for buyer) ?.Do I have to file for bankruptcy before they get the judgement? If I file after the judgement, do u think it will be discharged?

Thanks,

Bala

The account status as closed means you can't borrow more money on the HELOC. It is still active since it is not a paid account. The HELOC is a promissory note that is secured with a mortage on your property (house). There is no requirement that you be sued first on the mortgage and then the promissory note. They can just sue on the promissory note and get a money judgment against you personally. This goes for both before and after the short sale UNLESS as part of the short sale you get a written document from them that says you are released from the obligation of the promissory note.

You never HAVE to file for bankruptcy. It is your option. If they have no judgment against you why file for bankruptcy? Regardless of when the bankruptcy is filed, assuming you are qualified for a bankruptcy and want to go through that ordeal, it depends on what type of bankruptcy you file - liquidation or reorganization - as to the extent of discharge of the judgment or remaining obligation on the promissory note.

FEB

Thank you so much for your reply Richard.

I have balance of $158,000 on my HELOC. It's very difficult for me to pay this amount. I am assuming the second lender is going to sue me for this amount and get judgement.I have unsecured credit card debt of $150,000.I have no chocie other than bankruptcy to avoid this debt. Do they arrest me if they get judgement and I didn't pay ? Thanks!

Richard -- I beg to differ with you on the 1099 C in your comment back to me above. It does have to do with real estate....and there is a box in the 1099C (box # 7) that declares the FAIR MARKET VALUE OF PROPERTY. When I said VALUE of the debt on the 1099C-- perhaps I used the wrong word......and should have just said DEBT. So back to my original question...do you know if the DEBT on the 1099C in BOX # 2 IS GREATER than the FAIR MARKET VALUE IN BOX #7 on the 1099C....do you know if the debt is still taxable ?

Look forward to hearing back from you. Your knowledge about all this is very informative and appreciative ! Thank you

Richard -- after re-thinking this....I believe your comment was a "general comment" pertaining to cancellation of any kind of debt on a 1099C...right ?

I am talking specifically about real estate cancellation of debt. In box 2 on the 1099C...it says amount of debt forgiven..$ 285,000 In box # 7 Fair market value of property it says $ 150,000.

I have heard and read on other blogs that IF the DEBT IS GREATER THAN THE FAIR MARKET VALUE OF THE PROPERTY ON THE 1099C...THEN THE DEBT IS NOT TAXABLE.

This is what I was wondering about....if in fact this is a possibility ?

FEB

Susan =

What you have read about the debt being in excess of the FMV of the property is a reference to the "insolvency rule" under the Internal Revenue Code. I address this in the article SHORT SELLER STILL MUST DECLARE INCOME ON SALE! see item 2 in that article.

FEB

I have a property in the process of forclosure, and my property it'll be sold in auction in march,-3-2009,. I owe $150,000 in this property. let say that they sale it. for $100,000. Am I responsible to pay for the difference AND Can do they to put a lean in my primay home. thank you for your comments.

FEB

Sergio:

Most states have protections for a primary home. Consult an attorney in your state for the answer to your question.

I am sorry you have this financial distress and hope the best for you in the future. This too will pass.

FEB

I just had to reprint an ActiveRain message I got the other day - it shows the deep issues relating to the help people are "supposedly" getting in the marketplace - the name and telephone are omitted.

Hi Richard,

I saw your website online and read a couple of articles of yours. I believe I need help because the people that are helping me now do not seem to know what they are doing. No real solid answers. The people that I have hired call them selves florida shortsale specialists. Not attorneys. I have a lot of things going on in my situation that I don't believe they can protect me properly. I need the right advice so I do not get burnt in the end. I really need an expert to help with this stressful processs.

Quick summary. i live and work in Ohio as a dentist. I bought 2 homes in Florida and the bubble burst. The one I stopped making payment on is in Homestead. I have missed about 2 payments. I just finished getting a divorce last week. It was kind of stressful and was taking a lot of my attention from this. Because there is a lot of informaton for my case If you can tell me how to proceed to either give you a more detailed email or call me that would be great. The faster the response the better because I think it needs immediate attention.

APR

I lost my job 6 months ago in South Fla. I have been unable to find a job here and a salry that would pay the mortgage. I am going to work out of state for half of my previous pay. I have the home listed for shortsale. I am current on payments but have made my last.

Everybody tells me not to worry just yet as I am about 1 year away from that...easier said than done..

If the worst happens and it does not go in a shortsale I am about 120K upside down at this point according to comps. What is the likelyhood the bank will sue for deficiency. I have no other property, no real assets. Would they ruin the rest of my life by garnishing wages on something that will grow each year with 11% interest. I could never recover..

If so what options do I have. I simply cannot pay it, I no longer have the income.

APR

DFrank

You are some time away from being kicked out of your home -- but that is not a solution.

You have to assume that the deficiency left in a foreclosure will be pursued. This is because the lender who forecloses on you will either get the deficiency and then either collect on it in the future (they will have 20 years to do so) OR they will sell the right to get the judgment (or the judgment itself) to an investor who will then pursue you until they get paid an amount that satisfies them.

For the purpose of this type of judgment you are talking about 20 years until it can no longer be pursued. A lot can happen in the next 20 years.

I suggest you get it sold at a short sale -- remember it is only a matter of supply and demand and the adjustment you control is price.

JUN

If I sign a promissory note for the PMI company in a short sale and the lender/servicer agrees to report the short sale of my home as paid in full to the credit bureaus would I be able to purchase another home/get another mortgage immediately?

AUG

Do i understand that it is better to do a short sale then a forclosuer? By doing a short sale we will have to pay back the deficiency but with a forclosuer it is the same only that they can garnish waes and attatch leins. if we were to do bankuptcy it would damage our credit and we would no longer be able to buy even a car?

OCT

How do you negotiate a deficiency judgement being pursued by the lender. After foreclosure, the lender has transferred the deficiency to an attorney.

OCT

Essentially, the attorney is going to want a judgment and then pursue you for the next 20 or so years (depending on how long a judgment lasts in your state). You want to avoid the judgment and give the attorney the ability to convince his client that what you are offering is better than the judgment he can get.

Cash now is a very powerful tool. It avoids all the pitfalls of you protecting yourself (at some sacrafice) to acquire assets and thus thwarting the judgment holder from getting a useless judgment. Or you can have an agreed payout without a judgment. The key is you want to pay less than you promised to pay originally. But you are going to have to take a position of doing one or the other - protecting yourself for a long time, declaring bankruptcy, or undertaking a payment plan.

With the above being said, please understand that this response is a general comment about the law and is not expressing a legal opinion about the very general fact pattern raised herein. As such, this brief response may not be relied upon for any purpose. Please consider obtaining formal legal advice if you have a specific fact pattern with respect to which you need an answer.

See our easy to understand articles at:

TABLE OF CONTENTS - SHORT SALE AND LOAN MODIFICATION ARTICLES

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