A few weeks ago, I was conducting an interview with Doug Minor, the credit expert. In conversation the subject of establishing new credit after a short sale came up. I starting to think...is it possible that agreeing to promissory note that is unsecurred after a successfully closed short sale could be a good thing? Many of our members would have to agree that it seems like servicers / investors have been leaning towards promissory notes lately as a cherry on top of the deal in order to satisfy the deficiency debt. In my personal experience, it is almost never a note for the full balance. Usually it is right around 25% (give or take a few percentage points). Many times, if homeowners were never informed that this may be required, they may object to such requests made by the servicer / investor. This trend will probably increase in popularity as more and more seconds are being asked to release for $3,000 or so. So the homeowner looks at you with this "are you kidding me" face as you communicate the servicer / investors request. What do you say in response. Now if you're a PSC, hopefully you discussed this possibility with them from day 1. But if you didn't, it is time to have a heart to heart with your client. Disclaimer: we as Realtors cannot "advise" a Seller to sign a promissory note nor advise them that it is their best option. That could be considered legal advice. However, it is our job to relay to them all communication we have with the servicer. If the servicer requests a promissory note, we must let them know.
Now back to the original idea of a promissory note possibly being a good thing. Doug Minor told me explicitely that establishing a new unsecurred credit account (i.e. promissory note) will very likely improve the Sellers credit. How? After the missed payments on the mortgage, the "paid in full for less than the full balance" language, and the recent negative source codes (severly deliquent accounts), the FICO system wants something good to report. A promissory note is a start in the right direction towards credit recovery. I thought, as an active agent in the trenches, that this was important information to share with our clients who desperately need some good news. Bottomline, it's not pretty but it may be the difference between a successful transaction or not. Thanks for the info Doug. I'll keep the conversation going...
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