Welcome to Earth. You may not get these calls and emails but I do. "Ken, I enjoyed your video about short sales on YouTube. I recently had the bank accept a short sale offer on my home for less than I owe and they are asking me to sign a $65,000 promissory note. Have you heard of this and do I have to sign it?"
Thanks. Yes. No, they won't shoot you if you don't. But ...
Of course I have heard of the lender asking a seller on a short sale to sign some form of indemnification against the loss to the lender or their investors. What, you think all those people who took a risk in loaning you money should just say, "Oh, that's okay honey. We understand you did the best you could. Now run along and play."
In the flow chart above we go so far as to show the ultimate holders of mortgage notes. What this is intended to demonstrate is that the actual investors in mortgage notes (where the lenders get their money) are people like the Wiclows and Marcus and Chenice. They are people who invest into these instruments in order to build their retirement, take care of their family (older and younger generations), re-invest into the community and sometimes just pay their bills. Insurance companies have their own investors who depend on positive return on investments as do unions, and retirement fund managers.
Now that you have made it to this point understand that every foreclosure, every short sale and even every late or missed payment affects people just like you would you like to drive out to Marcus and Chenice at their home and tell them you're just not going to make your payments anymore and you have no intention of ever repaying them for the money they loaned you?
Yes, the lender may/will ask you to sign a promissory note. A promise to repay something you already promised to pay once. It's not Marcus and Chenice's fault you can't/don't want to pay your debts. So you can refuse to sign the promisory note and the lender can foreclose and get a deficiency judgment against you and still make you indemnify their investors against the loss. You will take responsibility for your debt one way or another. The only way around this is if you live in a non-recourse state or otherwise have some form of non-recourse loan.
Now before you go blasting me I know there are times when people fully intended to repay the money Marcus and Chenice loaned to them and they get sick or lose their income and cannot replace it. We have always had remedies for people in those situation: bankruptcy, deed in lieu of foreclosure, welfare assistance, and others. This short post is aimed at those who have a job and can afford their payments but drive $700 a month cars, have every cable channel imaginable, eat out every meal, has vredit cards