Richard,

Great information! Thank you.

I'm trying to buy a short sale property now, and Wells Fargo has just rejected my offer. (It's appraised for 85k. I offered 100k. WF wants 210k, essentially what is owed on the note. It needs all new systems, roof, siding, etc.)

This is an investment property for the current owner, who has had several other foreclosures in this area in the past year. Does the bank still have an incentive to complete a short sale? Or would they just as soon foreclose? I trying to determine if they will reject any offer that I make, because they don;t want to offer a short sale to this owner.

This is my first home purchase, by the way. I'm not in a hurry, thank goodness. I just want a place that's priced right and that I can put some sweat equity into. Thank you!

Kris

Richard,

I am going trough a short sale on an investment property in Miami. The bank gave the approval for the short sale and at this point is on the hands of the closing negotiator. They asked me if I was able to sign on a promissory note and I couldnt commit to anything due to financial hardship.

At this point is there anyway to negotiated with them so that I don't get a deficiency judgment?

Thanks,

David

Richard,

Very informative. You mentioned "In the future the lender could sue you for the deficiency unless they waive that right in writing as part of the conditions of the short sale." Does this mean that if the closing negotiator presents the terms of the promissory note, and the seller agrees to those terms, that the lender has further recourse to come after the seller again, for even more, at a later time? 

This is the legal language that appears to be currently used by one of the major lenders these days (the second in my situation):

"XXX and/or its investors may pursue a deficiency judgment for the difference in the payment received and the total balance due, unless agreed otherwise or prohibited by law, if the short sale closes on the loan referenced above. In addition, if this loan is covered by mortgage insurance, the mortgage insurance company may reserve the right to pursue the seller for the deficiency based on the terms of the mortgage insurance policy. Furthermore, there may be tax consequences associated with entering into a short sale. The seller is encouraged to seek the guidance from an independent tax advisor, and/or an attorney, before proceeding with the short sale.

If this short sale is contingent upon XXX and/or its investors receiving a promissory note, we will reserve the right to collect the full amount on the new promissory note which may lead to us pursuing a deficiency on that balance should the need arise. If the short sale does not close, then we will pursue all remedies under our note and mortgage."

Am I reading this correct that if a promissory note is utilized, the collection amount would be limited to this new note, rather than the original deficiency?  The first paragraph mentions "unless agreed otherwise". Is the promissory note derived from this language? Lastly, once again, if a promissory note is agreed to by the seller, does the lender have recourse to collect more at a later time, or is the promissory note the proverbial "end of the line" for the lender?

I thank you in advance for your time,

Ron

Richard:

Thanks for such a clear explanation!  As a Florida real estate agent, I also would like to use this in my newsletter and website (giving you credit as author) and would like your permission.....

Maryann

Can the lender go after a deficiency judgement if their short sale approval letter included the following verbage--

"we are prepared to accept the offer in question as full satisfaction of the outstanding debt and will release the lien on the subject property"

or "we agree to accept the proceeds generated from this sale as full and final satisfation on the mortgage indebtedness"

That sounds very final to me. Am I wrong?

If I am wrong, how would they determine the amount of a deficiency judgement in a short sale deal that closed? (I'm in CA and the loan was a refi)

Very interesting your answers. Thanks for your contribution to us. I already closed a  short sales and my client received a notification from the second mortgage lender about a suit for the deficiency. I am really surprised because in the approval letter they agreed to accept $2,550. in return to give him a satisfaction of mortgage. Their approval letter was pretty simple. Below I will wright exactly the text on the approval letter, I would like you to send me your comment since I want to make sure they have the right to suit my client, it looks to me that they are trying to push to see if they can get more money.

"  This will confirm that a Satisfaction of Mortgage satisfying the mortgage recorded in Official Records of Miami-Dade County, Florida will be issued upon receipt of $2,550.00 from (my client name).The above referenced property will be released from any and all claims from Citibank (USA), N.A.  "

The check for the amount mentioned was already cleared but the release was not recorded yet.

I would appreciate your comments.  Thank you

I am about to purchase a short sale property (New York). The seller has numerous money judgments  attached to the property that she cannot satisfy. Hence, if I want the property, I have to pay the outstanding judgments for clear title . The bank that holds the mortgage refuses to pay off these judgements.

  Am I afforded the option of debt consolidation for these outstanding judgments- although they are not mine?  .  Any advice on the best way to have these judgments reduced would be greatly appreciated!

Carol

So Richard, you mentioned this thing called a 'novation' that is created with a promissory note and apparently substitutes for the deficiency that would be generated on a short sale.  I take it that this then becomes the new or corrected deficiency.  Is this correct?  On my short sale, BofA specifically stated that I would come up with $0 at closing AND sign a promissory note for $0.  I obviously didn't sign such a note (doesn't make sense).  Can I now assume that because of this wording in their contract that I am relieved of the entire deficiency.  My house was owner occupied, no PMI, single mortgage and in Illinois (a recourse state).  My lawyer was unable to get BofA to take out the deficiency language from the contact.  His opinion was that with the $0 promissory note that that leaves me off the hook - I'm still nervous.  What do you think?  I don't want to have this thing hanging over my head for the next 5 years.

Steve

Thanks Richard for responding.  I'll be looking to see if they 1099 me in January.  The consensus is that if you get a 1099 for the full amount of deficiency you're in the clear.  Do you agree with that?

Steve

Thanks again Richard.  After factoring in all the back interest, back taxes, lender provided insurance, real estate fees, my lawyer's fee and all the other garbage fees that appear on the HUD-1, it looks like my deficiency is around  $200K - unbelievable.

If you're ever giving a seminar in Chicago, let us know.  I would love to attend.

Steve

Hi Richard,

Is Florida a non-recourse state? I think we will have to declare bakrupcy. We live in NJ and have a condo in Florida (the problem).

Thanks

Rich

We are short selling our house backed by Fannie Mae (mortgage with Chase). As I understand, they are not making us sign a promissory note at closing but want to hold on to their right to come after us for the deficiency at a later date. How likely is it that they will sue for the deficiency? (It's about $85K.)

Also, we have about $35K in CD's. Will they take those? 

Richard,

I know this may be a bit off base here since most comments are directed towards the short sale process, but you had previously mentioned that if the short sale does not proceed, for whatever reason, that bankruptcy should be relied upon as a last resort. I completely agree. However, based on everything I have read, it would appear that if you intend on filing ch7 or ch13, you had better make sure you have taken a pre-qualification certification course (approved by the dept of justice) 6 months before the filing, or else the filing could be thrown out. From the courses I have found online, the course provider typically provides you with a certificate that is only good for 6 months, but like I already mentioned, you need to get the certification 6 months before filing. So it would appear that this certification is good for 1 day. I just wanted to throw this information out there to your readers. Hopefully someone will comment on this to set the record straight if I have misstated any facts. Thank you once again for providing us with this forum.

Ron

Richard,

Great info.  Have you ever negotiated with WAMU, now Chase? They have approved a short sale, but won't move on the release of the note.  Is it your position that you are better of proceeding with the short sale and address deficiency issues as they arise in a new proceeding?  And do you waive any defense like standing and lost not in the original foreclosure action?

Richard,

I am aware that you, as well as other attorneys are of the opinion to use the "Bankruptcy Card" as a last resort. Five other attorneys i have spoken with, recommended that I allow my home to go into forclosure because of my situation and all of them told me with conviction that the banks very rarely go after deficiency amounts. Currently I have perfect credit and everything is paid, yet I lost my job and it is just a matter of time until I run out of money. I have survived to this point by "Robbing Peter to pay Paul", using my credit line on my second mortgage.

I have conceded to the fact that I will have to let the house go because I am too far in. The deficiency amount could end up to be around 200k to 250k when all is said and done. In Florida, I am of the understanding that there is a 5 year statute of limitations to file a judgement. My concern is this: I would like to get on with the rest of my life. Since it is a possibility for the the bank or collection agency to come after me for the deficiency amount, it could be 5 years from now. In 5 years I am confident I will have a good job again and be moving on with my life and rebuilding credit. If they decide not to pursue me, then great. What if they do? Everyone says then pull out your "Bankruptcy Card". That sounds great in theory, but what if I don't qualify at that time. According to FL, your household must be making under $42,000 a year in order to qualify for Chapter 7. Currently I am eligible to qualify for Chapter 7 and probably will for the next year. At some point, I will be going back to work and my last salary was about 65,000 a year.

I am concerned that the options available to me now, may not be available in 5 years or less and I could get stuck with a 250,000 judgement. What are your thoughts? Take my chances with the Foreclosure or just do the Bankruptcy now while I have the opportunity and move on with my life?

Richard-

I negotiated a short sale on my primary residence in December with Bank of American and Chase (WAMU). In my state (Idaho) there is a 5 year written contract enforcement statute. The deficiency is $125k with the 1st and $48k with the 2nd. I am legally insolvent and have $50k in other unsecured debts and have settled many others. So my credit is shot, but I have done everything to avoid bankruptcy. With these potential deficiencies looming...should I just pull the plug knowing that at anytime in 5 years they could come harvesting? If it weren't for the short sale deficiency, I think I could manage my debt load. But why waste my time and money? Is there anyway I can contact the banks (they have not contacted me for any deficiency..yet) and see if they would release their interest because of my insolvency situation? Thanks.

My 1st mortgage is with WellsFargo $317K and 2nd HELOC is with PNC (earlier National City) around $55K. I have a short-sale offer from a buyer but the second doesn't even want to look at my papers unless I sign a Shortsale deficiency agreement with them. The language reads as "Unless prohibited by applicable law, I agree to remain responsible for repayment of the remaining balance on my account pursuant to the terms of my note or line of credit agreement". This is the only property we own and it's in CA and we moved to MN 2 years ago for job purposes and rented the place. Recently tenant moved and we couldn't find any tenant on time forcing ourselves into short-sale. In this situations, what are the chances that the PNC comes back after us with the deficiency judgement in CA.

Thanks you for your response early about my shortsale deal. I am not able to come up with the money they want at closing 3,000and I can't afford the promissary note they are asking 354.50 for the next 90 monthes. I am barely making it now, I am going to have to follow a chapter 13 anyway because of other bills that went under because all my money was going to mortage. I have spoken with many banks, brokers and they say anytime you go past 180 days on mortage it is looked as a foreclosure anyway. Not sure why they won't take short sale deal??? Since the house is only showing worth 235,000 now from 385,000. My realtor tried neg with them but the investor won't move on the deal unless promissary notes is signed.  The bank did agree but pmi and investoring won't move on the deal. Please help, stuck in a no win situation

I live in Pa and have an investment prop in Florida. What state laws apply to short sales, foreclosures etc. ?    On the deficiency in a short sale what can the mtg company get their hands on? Soc Security income? IRAs? current income? home that is in both husb and wife name? investment prop in husb name only? Same apply to foreclosure and deed in lieu of?

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!!!