How to predict when a promissory note will be required in short sales for part of the deficiency balance

Great point, Bill!  That is true that after the transaction closes, the lender will most likely be willing to accept a cash settlement from any source in full settlement.  Depending upon how strapped for cash the lender is, and many are very strapped indeed, the amount could be as low as 10%, although 30-80% is the expected range.

Ken

Jim, the state is not really the deciding factor but region could have a bearing.  You cannot reliably predict the requirement for a promissory note, but it allows you to brace for one so you will not be surprised.

Today, I spoke with a seller who owns her own home >$200k with no liens, and the short sale is on a rental unit,  and this one is easy to anticipate a requirement for a promissory note. 

The regional effect is minor, yet present.  In some areas of the country, properties are appreciating in value, and this may be the icing on the cake if there are other factors present.

Ken

Thank you, Satar.

Ken

Those factors are not always reliable to predict, but at least when you encounter sellers who have one or more of those factors present, you can give them a heads up so they will not be surprised when it happens.

Thanks Jon, for your comments on this and the other post.

Ken

Thank you, Wendy!

Ken

Thanks, Brian.

Yes, it is often the case that the second lienholder requires the note, however, it has become increasingly more likely with a first lienholder right now when there is so much political pressure to not seek deficiency balances.

Actually, since I started my law practice representing the lenders, it is often better for seconds to not require the promissory note, but merely to assent to the release.

BTW, Brian.  I was just in Boise last weekend to present to a mediation conference of the Idaho Mediations Association.  It was held at Boise State University.  Boise is a great city nestled up against the mountains.

Thanks for the comment, Brian, and great job on asserting the defense for your clients.  If the documentation supports your client, you can often convince them to back down.

Ken

Well, Candice, there are many so-called "experts" bloviating.  Actually, the definition of expert is this:  an "ex" is a has-been, and a "spurt" is a drip under pressure!

Joking aside, it is difficult for many people to keep up with the changes.  We first saw the beginnings of the change from the comparison analysis to the minimum threshold analysis last summer.  Then when all hell broke loose in the fall, the changeover was mostly complete. 

There are still some regional secondary market investors who utilize the comparison analysis, along with a number of commercial investors as well.

Thanks for your comment, Candice.

Ken

I hope you find it helpful.

Thanks for your comment, Christine.

Ken

Kris,

Sometimes the note is on the credit report and sometimes not unless their is a default.  I don't know how it is stated.

Now, whether it is negotiable... yes except when it is not!  The promissory note is often the difference between the net-to-lender minimum threshold percentage of the fair market value and the amount they will net.  It may also be dependent upon their perceived after-short sale view of the borrowers' rehabilitation prospects.  An opportunity exists to educate the secondary market investor (SMI) who is creating that condition and the current realities.  Of course this must be done through the servicer, so you must structure the negotiation in writing in such a way that it will be conveyed to the SMI.

Ken

Bill, that is often the case, but some of them agree to not report it to the credit reporting agencies unless and until there is a default.  There is a growing trend, albeit minor trend, to not report them.  But you are right that they often will report them.  We always attempt to get them to hold reporting and often, but still a minority, will agree.

Thanks for your input, Bill.

Ken