Deficiency and full settlement language

By
Real Estate Agent with John L. Scott MPV 104970

Deficiency and full settlement language

Deficiency and full settlement languageI've heard stories of past clients calling up their realtors years after their short sale with horror stories about how the bank froze their accounts and took all their money. Several years after going through a short sale, they get back on their feet and maybe get a big inheritence or a bonus at work and BAM it's gone because the bank came after them!

Can they do that? YEP! The banks will try to get them to sign a deficiency note at the time of the short sale. Never let your clients do that. Instead you need to demand full settlement language. What a lot of people don't know (and all admit I'm not sure if this is just WA or every state) is that the banks have 6 years to collect on deficiency....THEN they have an option for a ten year extention...TWICE!!!! That means they can come after them for 26 years for that money!!!

Deficiency and full settlement languageBank of America will never give full settlement language. Regardless of whether you sign the note, their language will always be "may or may not" come after you. And when you question them as to why they won't give full settlement languge... they say "There are reasons we don't"....translated too...WE WILL COME AFTER DEFICIENCY. Make sure your clients know that. Advise them to keep "mattress money" in a fire safe just in case that happens to them one day. The last thing you want is your client showing up a decade later asking you if they can have dinner with you because they sold their car and the Deficiency and full settlement languagelender suddenly snatched it up and took all that money plus their savings and now they can't afford food.

One of the main advantages for doing a short sale versus going to foreclosure is you can often get full settlement language. Always request it. Many lenders wont simply roll over and do it unless there is something in it for them. So sometimes the lender will request a payment like 10% to give full settlement language. Sometimes they wont. If they require some payment, I'd encourage your clients to sell the car and drive a clunker for a few years so they can pay the bank to get full settlement language in writing. That is the only way to ensure that won't come after them later. They are much better off doing that and getting full settlement language than having them come back two decades later and milking them for a $40,000 deficiency.

Comments (6)

Cari Anderson
Danville, CA

Great post.  I have a former associate, who after his short sale, is being very aggressivley pursued by Bank of America for his deficiency.  This began to happen within 3 months of the sale.

Jan 23, 2010 02:29 AM
Jeff Rainwater
John L. Scott MPV - Maple Valley, WA

Yuck. Best thing with banks like BofA is simply to set the expection with the sellers that they WILL come after that money later and make sure they do all they can to protect themselves. Unless someone else has found a better way to handle that one, not sure what else to suggest.

Jan 23, 2010 03:01 AM
Steve, Joel & Steve A. Chain
Chain Real Estate Investments & Mortgage, Steve & Joel Chain - Cottonwood, CA

Jeff, This is a good topic. Sellers should definitely seek legal advice on deficiencies. Especially when considering the challenging decisions related to short sale, foreclosure or bankruptcy.

Steve

Jan 23, 2010 04:21 AM
Jeff Rainwater
John L. Scott MPV - Maple Valley, WA

oh yeah thanks for reminding me...I totally forgot my "This is not intended as legal advice. I don't practice law. Always consult an attorney." disclaimer.  =)

Jan 23, 2010 03:15 PM
Rich Cederberg
eXp Realty - Albuquerque, NM
eXp Realty Agent Albuquerque

Jeff, excellent post, great content, great look, you look like you've been doing this for years.

Feb 01, 2010 05:41 PM
Jeff Rainwater
John L. Scott MPV - Maple Valley, WA

Thank you very much for the complement Rich!

;)

Mar 03, 2010 06:22 AM