Many of my short sale clients want to know if the bank will require them to sign a promissory note as a part of their short sale approval.
A promissory note on a short sale is an unsecured note requiring the Borrower to pay back the deficiency (or a portion of the deficiency) over a period of time, often with no interest charged.
Example: You owe $200,000 on your home. You sell the home for $180,000 and there are $15,000 of commissions and closing costs. The bank receives the remaining $165,000. This leaves a $35,000 deficiency between what the bank is owed and what they actually received. Let's assume the bank requests a promissory note for 80% of the deficiency ($35,000 x .80 = $28,000) at 0% interest, amortized over 30 years. This promissory note would yield a payment of approximately $77 per month.
In many cases the bank accepts the remaining net amount as "settled in full for less than amount owed" and the Borrower is released from the debt (although there may be tax and credit consequences which you should be aware of). However, in some cases the bank will only approve the short sale if the Borrower agrees to sign a promissory note.
When beginning a short sale, there is no way to know for certain whether or not the bank will request a promissory note. Certain banks always request a promissory note and others almost never request them. In my experience they are more common on second mortgages, Home Equity Lines of Credit (HELOC), and bank held portfolio loans. However, this is a negotiable term and the Borrower must agree in writing to the promissory note.
While promissory notes are not ideal, they are almost always better than foreclosure. I have heard several clients say, "I'm not signing a promissory note, I will just let the bank foreclose." I always remind them that in the state of Tennessee the bank can still sue for a deficiency judgment on Foreclosures and Deeds in lieu of Foreclosure. Therefore, if your short sale realtor is unsuccessful at negotiating a short sale with no promissory note, and the terms of the bank's promissory not are reasonable, it may be your best option.
If you would like to further discuss a Middle Tennessee short sale or if you need a specialist to help you navigate through a short sale, contact us today! We successfully negotiate over 90% of our Nashville area short sales. Less than 15% of our short sale Sellers have to sign a promissory note.
aaron@ArmstrongRealEstateGroup.com
O: 615-425-3610
Comments(0)