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

I cannot afford my NJ home as me and my wife lost jobs. We are also moving out of the country and don't intend to come back anytime soon. I am considering "deed in lieu of foreclosure" as the home value is 20% below. I have 1st and 2nd Mortgage from same Bank.

1. How do I go about it? Talk to Lawyer first and then my Bank. What type of Lawyer? Can you recommend layers or any strategies to convince the bank?

2. If the bank doesn't agree on a deed in lieu i will be forced to "foreclose". I am assuming the "deficiency judgement" only kicks in if the house gets foreclosed.

3. Only assets I have in US are the 401K and Social Security. I understand the "deficiency judgement" cannot access my 401K and SS money. Right? But what if I start removing money from 401K in the next few years?

4. How long does the deficiency judgement last in NJ? i.e. when can I start withdrawing from 401K without being concerned about banks forfeiting my money as I withdraw it

5. Do collections agencies go and collect deficiency judgement from abroad?

Any advise is appreciated

Richard, I am in the middle of short sale.  Let's say for the sake of the argument I bought the place for $200k with Bank A providing $150k and Bank B providing $50k.  I did provide a hardship letter which highlighted my extenuating circumstances. 

Bank A just approved of the sale and I'm looking at the documentation which says at closing the cash contribution is to be $0 and in the area where they discuss a promissory note, it says NA.  

This leads to me to believe I will not have a deficiency.  Does this sound right?  How can i find out if if there will be any tax consequences?  And what issues may I say from Bank B?

I appreciate any guidance you can provide.

We live in CA which is both a judicial and non-judicial state. We have 4 vestment properties that are all underwater. These properties are in one of the hardest hit counties during this recession. And, it's getting worse. The loans are with one bank, all conventional with a 20% down from our nest egg. We own one property valued at $800,000+ which is mortgage free that we also rent out.

We have been subsidizing all 4 properties heavily for several years now due to the declining economy.  Our cash savings is dwindling.  Our income dropped as I retired from a nightmarish job with the plan to seek other employment as I have extensive professional experience, but I am still looking.

My husband doesn't want to put any more money into the 4 properties. Houses next to our properties are in foreclosure further pushing down the values or our property, tenants are\have lost their jobs causing us to dig even deeper into our pockets. No matter how we try to uphold our end, everything is falling apart all around us.

My husband wants to foreclose and stop the bleed. He feels assured that the bank will not pursue  deficiency judgements. Two lawyers and our real estate agent have told us the same as it is evidently customary in CA for banks to do non judicail foreclosures which don't allow for deficiency judgements. Also, our loan docs allow the banks to take over the property and sell them in the evet of default. But, I am still uneasy because we have the property asset that the banks can attach to (I think) and just don't see why the bank would let us of the hook if it didn't have to.

As far as short sales, the banks are asking for promissory notes for the deficiencies and other settlement contrbutions which I would think would be substantial in our case given our other asset. So, I'm thinking of selling the $800+ property. Then doing a sell by owner shortsale for the other 4 rentals. And then, making up the difference ourselves (if we can). But, no one agrees with my plan.

I would appreciate your comments.

Thank you in advance

Hi Richard,

We have been trying to do a short sale in CA for almost a year. Both banks have agreed and approved the short sale (with the 2nd bank agreeing on 15K for the deficiency)

Here is what the letter says:

Based on the information provided and a fully executed Purchase Agreement, you ("Seller") have been

approved for a Short Sale pursuant to which:

a) PNC will release the mortgage pledged as collateral for the Account upon receipt of a minimum of

$15,000.00;

b) PNC will not pursue collection of the remaining deficiency balance* ("Debt Forgiveness"), which

after receipt of the PNC Proceeds of Sale will be approximately $70,055.65. Additional interest and fees

may increase the actual amount of the deficiency balance. If the Account is an open-end Home Equity

Line of Credit Account, the line will be closed and no additional funds may be borrowed on the line; and

c) PNC will report the amount of the Debt Forgiveness as "account paid in full for less than the full

balance" to the credit reporting agencies.

This offer is subject to the following requirements:
1. Seller of the Property receives $0 back at closing;
2. Any overages, tax credits, or additional sale proceeds of any kind must increase the
amount of PNC Proceeds of Sale unless otherwise due to a more senior lien holder;
3. PNC must receive a true and correct copy of the HUD-1 signed at closing;
4. Seller acknowledges that except for the release of the PNC mortgage, the Debt
Forgiveness, and the closing of the line (if Account is an open-end Home Equity Line of
Credit Account), all other terms and conditions of the Account remain in full force and
effect; and
5. This offer is valid until February 17, 2011. hi order to accept, certified funds must be
received no later than 4:00 PM on that date, payable to PNC Bank, and sent to the
following address:

2 questions I have reguarding this...

Will this letter really release us from them coming back at us for more and also if we do end up foreclosing (highly likey because our buyers keep backing out for different reasons...we've had about 4) our real estate agent is telling me that I can still pay the 2nd bank the 15K and they will still release us from the deficiency and not force us into bankrupcy.

Any thoughts are greatly appreciated!

Thanks so much!

-Kristin

Hello, Richard, and thank you for such a great blog.

We are trying to short-sell our house in Florida.  Our first sale fell through a day before closing on the buyer's financial end.  We have a bank-approved price now and are hoping for another buyer.  We have a 1st and 2nd mortgage through the same bank.  The 1st mortgage is asking for $2K at closing and offering a letter of release.  The 2nd is also asking for another $2K at closing and refusing to give us the letter of release for the remaining $50K.  In fact, they have asked us to contact their Recovery Department within 10 days of closing to discuss repayment of the $50K.

Just curious, but if we refused to pay the deficiency - since it would no longer have collateral against it - would the defaulted deficiency eventually "fall" off our credit report after 7 years of non-payment?

I live in Florida (Palm Beach County) and short sold a home that had an equity line of credit of 50K.  The outstanding 1st mort balance was 181K plus the equity line (50K).  The property sold for 60K.  The 1st threw 4100 to the second to release the lean to allow the sale to go through.  The 1st agreed not to pursue defficiency and is in writting.  At closing they had me sign a promisary note for the balance of the second with a time frame in which to contact the bank and make arrangements.  Well I was late getting back to them to make the arrangements and for that I take responsibility.  The bank did not want to deal with me and referred me to the attorney.  I tried to settle with the attorney but they would not accept my offer of $500 per month.  They insisted on 650 which I cannot afford right now.  Well the bank issued a satisfaction/release of mortgage on the second - less than a month after we closed and I did not realize this.  I called to ask questions (both attorney & bank) as to why did I sign a promisary note when you filed with the clerk of courts a satisfaction/release of mortgage document for the equity line account (both 1st & equity line are with the same bank).  I believe they were supposed to issue the satisfaction/release of mortgage for the 1st but made a mistake and did it for the equity line of credit.  No answers - of course, no replies.  Low & behold a motion for summary judgement is served to me.  I answered and again asked the same questions in my response letter which was mailed to court, the attorney and the bank.  Well, I am appearing in court this Tues.  Do I have any defense?  I am sure the satisfaction/release of mortgage document is for the second.  Can I still be sued when the bank says this equity line is satisfied?

I live in Michigan and recently my property sold at a sheriff's sale. Wells Fargo (which is also the lender) was the highest bidder at the auction (no surprises there). I have 6 months from the date of the foreclosure sale to redeem the property, short-sale it or just walk away. I contacted Trott & Trott, a debt collector for Wells Fargo on this case, to get the total amount in order to redeem the property. The new pay-off is 50% less than what I owe. It's a matter of writing a cashier's check to Wells Fargo of the amount they requested and a small fee to the collection agency for preparing the redemption receipt... However, there's no way of knowing if Wells Fargo will waive the deficiency balance.

Is there a way I can ensure myself before redeeming the property that Wells Fargo will not come back for the deficiency? Is there some type of request form or any type of written letter that I can submit to Wells Fargo and hope that they will waive the deficiency rights? Do I need to hire an attorney to formulate a letter to the bank on my behalf?

Please advise. Thank you.

I own a single family home in Wisconsin. After a divorce we no longer made payments. Placed on the market I've discovered the home worth 40K less than what I owe. Wells Fargo has obtained our hardship letter explaining our situation. I don't recall receiving an approval letter. Is this pertinent? Also how do I know an appropriate amount to list the home so that Wells may accept my short sale without a deficiency judgment? Do I consult Wells Fargo with as much $ as I can get from it and then go from there?

Hi, great information, thx!

We short sold almost a year ago. Agreed to, signed, a 10k promissary note. A month after closing I tried to pay the note off in full to PMI, but the bank (SunTrust) hadn't yet sent the bill to PMI. So we got a letter in writing from PMI saying that we do not owe anything at this time (even though according to the documents we signed at closing the loan should have started repayment).  Fast forward to 10 months after closing, and still no notice to pay. I'd have the money to pay and would like to get this note paid off asap. OR not have to pay it at all. How long do they have to get this thing going (live in VA if that matters).

Thanks!!!

thank you for all help