Isn't It the Lender Who Decides DEBT FORGIVENESS?

Real Estate Agent with Liberty Homes RS-#62825

Along  my path in the real estate industry I learn and continue to learn. I know that going above and beyond and being a detailed Realtor Associate® leaves me respected by many.  I came into the market at the start of the boom and weathered the storm during the downturn and I am at the point in my career where I am ‘stable'.

I make a good living, I make sure to allot time for me, time for family and I certainly do not take on more than I can handle. I have control issues (which I'm sure many will agree they do as well) as I have my own style and anal retentive ways of being on top of things. In that respect I assure my clients I am not too busy to take care of them.

Every transaction IS NOT THE SAME. I will continue to repeat that line during and after a transaction as I surely continue to learn something, anything....from each client and transaction. I surely will remind myself to not take things so personal as it's the perception of each human being that will sometimes create a negative or positive reaction.

For every action there is a reaction.

Short Sales are a part of our market in Hawaii and more so in some neighborhoods than others. I surely think in the best interests of my buyers and sellers and make sure to be honest and forthright with the information I give them. If it's beyond my scope then they need to seek legal advice from an attorney.

I have done a few short sales for buyers AND sellers and  I don't like the way the lenders/banks know that lives are in their hands and they take every advantage to look like the good guy when indeed they just don't give a hoot. I'd like to see one of them say, "I care about you and will try and help you through this as quickly as possible so you can get on with your lives".  Yeah, right....when pigs fly.

It's one thing to know that only some states have a ‘debt forgiveness law' and another for the bank to blame the state on not forgiving the deficiency on a short sale.  This was presented to me the other day by a lender.


Correct me if I'm wrong please.

They either forgive or not.  Hawaii (and MANY OTHER states) do not have debt forgiveness laws.  And?  The perception of "Hawaii is not a debt forgiveness state" doesn't mean that it was up to Hawaii to forgive the deficiency in the loan through a short sale. 

 It was... and is the lender that gets to go after the borrower for that deficiency ..... or not.

So, Mr. Lender...don't sit there and act like it's any particular state's fault you didn't forgive the remaining was your choice all along. How people perceived the statement that ‘a state doesn't have the forgiveness law' can be misconstrued by the seller that it's the state that doesn't allow the debt forgiveness from the lender.  Most states just don't have a law that MAKES you forgive the debt.

It's these kinds of things that teach me yet one more lesson.

Others may not be straightforward and forthright ......

And  we have to be on our toes when statements are misconstrued.


Posted by



Celeste "Sally" Cheeseman  is a Realtor-Associate® and Certified Residential Specialist (CRS) with Century 21 Liberty Homes in Mililani, Hawaii. With a sharp understanding that a listening ear is the key to a client's needs  she serves the island of Oahu (Honolulu County) and all Hawaii Military Relocations, Hawaii Retirees, Hawaii Job Transfers and Hawaii Residents, Home Buyers and Sellers.


 © 2007-2015 Celeste "Sally" Cheeseman's

Hawaii Real Estate and Relocation Blog.

All rights reserved.






Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Barbara Kornegay 06/20/2010 11:52 PM
  2. Addie Reese-MIles 06/28/2010 06:30 AM
ActiveRain Community
Diary of a Realtor
POSITIVE ATTITUDE for the Weary Soul
short sales
hawaii short sales
games people play

Spam prevention
Show All Comments
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

I think the lenders make this decision if the state doesn't require it.  Also, HAFA requires that they waive the deficiency; so, hopefully we'll see more of this.

Jun 20, 2010 04:30 PM #25
Carl Schumacher
CIDM Real Estate - Grand Rapids, MI

Oops. I take it pasting from Word doesn't work well on the Active Rain platform? Sorry. Here's the post again:

Whether or not HI has a debt forgiveness law as you call it, I'd take a long hard read of that mortgage (Or trust deed if that's the case in your state) The whole idea of mitigating risk through use of an instrument secured against an asset is that the asset mitigates the risk. That is, the mortgage instrument contains certain agreed upon resolutions in the event of certain things taking place during the term of repayment, such as non-payment for whatever the reason. And the reasons could be many (or any) circumstances that affect the financial health of the borrower.

In a mortgage the lender is given the power of sale to satisfy the repayment in the event of non-payment. That's the major part of the agreement from the lending side. Of course, for over the last 80 years or so, that came with the assumption that barring the borrower "wasting" the property, it would, in such event, probably be worth more money in the future thereby reducing risk even further for the lender. In any event the power of sale means that the lender looks to the collateral for security, not the borrower. Just because the market is now depreciating, doesn't negate the intent of the original agreement. Therefore, I find it difficult to believe that a lender pursuing a deficiency judgment over an agreement that  was “expressly invented to grant power of sale” in order to make them whole in the event of default by the borrower, would have an easy time successfully defending that position in court. Debt forgiveness law or not.

Of course, stranger things have happened. The old McDonald's case about failing to warn the customer that the coffee is HOT comes to mind for example.

The point is, if mortgages didn't exist, few homes would ever be built or sold and our entire industry (including the mortgage industry) wouldn't exist either. That's the whole point of mortgages to begin with. If the lender wasn't happy with the powers granted them in agreeing to lend the money, they should have denied the loan at origination. Reneging after the fact seems like a pretty weak point of defense especially when the borrower had zero control of the overall economic conditions that created the collateral being valued at LESS than the amount loaned at the time power of sale was exercised.

I'd pursue that defense before I'd ever resign myself to bankruptcy as a solution.

My $0.02

Carl S

Jun 20, 2010 04:48 PM #27
Leslie Ebersole
Swanepoel T3 Group - Saint Charles, IL
I help brokers build businesses they love.

Carl, you bring up the point I try to make over and over -- banks do not lend free money. Money is something that is lent against an asset in order to make money for shareholders or note owners. Katerina rightly brings up that notes are owned by pension funds and insurance funds and teachers unions. A "debt forgiveness" takes money from those people -- not some faceless bank.

Money isn't free, unless we want to become a socialistic state with the government giving and taking on their initiative.

Jun 20, 2010 05:25 PM #28
Ron T. Weems Jr.
Weems Property Group | KW North Sound - Bothell, WA
Managing the details one home at a time.


I have a short sale currently that has had three offers on the table and it still has not closed yet. I don't understand why it takes so long when someone is offering to purchase it. It will cost the bank more to foreclose than to short sale it. It just blows my mind.


Jun 20, 2010 07:57 PM #29
TeamCHI - Complete Home Inspections, Inc.
Complete Home Inspections, Inc. - Brentwood, TN
Home Inspectons - Nashville, TN area - 615.661.029

Sally, interesting post. It is alway up to the person who is owed to make the decision to forgive and forget. Banks are all about the money, not human relationships...

Jun 20, 2010 10:25 PM #30
Brian Madigan
RE/MAX West Realty Inc., Brokerage (Toronto) - Toronto, ON
LL.B., Broker



I read these posts about short sales with interest. It's a fact of life in the US. In Canada, there are very, very few. And certainly, not nearly enough to even be worth mentioning.



Jun 21, 2010 01:16 AM #31
Kari Battaglia, PA
RE/MAX Platinum Realty - Venice, FL
Love Where You Live

Sally - Very interesting post and comments.  I have learned a lot.  Thanks.

Jun 21, 2010 01:55 AM #32
Carl Schumacher
CIDM Real Estate - Grand Rapids, MI

In response to Leslie's important point. I think it's also important to remind everyone that when a bank creates a loan these days, there's little actual MONEY involved backing the actual loan. In fact, in the recent past, actual money backing the loan has been as little as 4% or less of the face value of the note. That's what passes for "wealth creation" these days and IMHO one of, if not "the," major problem with our current system. There are pluses and minuses to this system of course. A plus is, that it makes more funds available for people to buy real estate. But as we've all now learned, that comes tempered with the reality that there's no "real money" backing the note. The only thing backing the note is the "full faith and credit of the US treasury." This system has now become 40% of our overall GDP which as recently as 1980 was only 8% or so of GDP. IMO, that's unsustainable as an economic system in ANY country.

We're now learning why maintaining the illusion of value of the underlying assets of these loans by guaranteeing the losses of the difference between current "perceived value" vs the "fake" wealth created, may not be such a good idea. IMO, this is what's creating a market in which many homes are selling for a fraction of the cost of the materials required to replace them, which in turn renders the underlying land on which these homes sit as being worth less than zero. I don't know about others, but historically, this just isn't logical.

We would have been far better off had we modified EVERYONE'S mortgage to a historically correct value of about 2-3% appreciation beginning from about 1997 forward and let the reduced payments resulting in more cash to everyone, stimulate the economy from the bottom up instead of the top down. Of course, there's a trade off there. That would mean that retiree's, pension funds, insurance companies, Saudi Oil Sheiks, etc, etc, would have taken the bigger hit on the illusion of value that was created. But IMO these folks contribute far less spending to the overall economy than working citizens who own homes, so it was the lesser of two evils. and many of the citizens backed by the value of these investments also own homes so IMO, ordinary Americans would have taken less of a hit if their homes were not rendered nearly worthless vs. their retirement fund.

And so the arguments continue. Whatever the outcome, hang on to your hats! I, for one, think we're in for a very bumpy ride for quite some time yet . . .

Carl S

Jun 21, 2010 02:02 AM #33
Melissa Zavala
Broadpoint Properties - Escondido, CA
Broker, Escondido Real Estate, San Diego County

Sorry, I have not read all the comments before posting mine. You have the Mortgage Debt Foregiveness Law of 2007 and you have HAFA. But if the lender does not accept the short sale (wholly up to their discretion), than you have nothing--no deal.

Jun 21, 2010 02:07 AM #34
Celeste "SALLY" Cheeseman
Liberty Homes - Mililani, HI

Melissa: My point exactly.....the LENDER HAS THE BALL.

Carl: Thank you for your detailed responses. You said........the borrower had zero control of the overall economic conditions that created the collateral being valued at LESS than the amount loaned at the time power of sale was exercised.  So...bottom line...again...the lender of the borrower has the control to deny. Like you said....regardless if Hawaii...or any other state has a debt forgiveness law.  As far as i've seen...there are only six states.

Jun 21, 2010 05:39 AM #35
Carl Schumacher
CIDM Real Estate - Grand Rapids, MI

Sally: Just to clearify, what do you mean by "The lender has the power to deny?" Mortgages are very specific about what "powers" the lender has in the event of default, which was the point of my comment. Do you mean, "The lender has the power to deny making the loan at origination?" (Which is true) or something else?

Carl S

Jun 21, 2010 05:56 AM #36
Celeste "SALLY" Cheeseman
Liberty Homes - Mililani, HI

Carl: the forgiveness....

Jun 21, 2010 06:09 AM #37
Patricia Aulson
Realtor - Portsmouth NH Homes-Hampton NH Homes

Ha!.....    i like the comment above about "banks are all about manking money not relationships! How true.

Jun 21, 2010 06:43 AM #38
Carol Culkin, ReeceNichols
ReeceNichols Real Estate - Overland Park, KS
Overland Park Residential Real Estate

Sally - And, this is why I use an attorney to handle and negotiate with the bank on behalf of my clients.  NY is also an attorney state so it only makes sense for sellers to pay a higher fee and let the attorneys make certain that the buyer IS forgiven for their debt in the end. 

Jun 21, 2010 02:58 PM #39
William Johnson
Retired - La Jolla, CA
Retired Real Estate Professional

Woo Hoo, This post says it like it is. It reminds me of the old expression, "He who has the Gold , makes the rules". We live in unusual times but it is times of stress that determines true character. Certainly no doubt about the conclusion.

Jun 21, 2010 06:41 PM #40
Celeste "SALLY" Cheeseman
Liberty Homes - Mililani, HI

William: Yup...he who has the gold makes the rules....That sure is true isn't it?  I'm stressed but hanging in there lol...

Carol:  BUYER? 

Pat...I'm reading all the comments and see so many quotes that ring true in this case.

Jun 22, 2010 05:24 AM #41
Pippa Mac
Chevaux Group Realtor, The Woodlands and Spring - The Woodlands, TX
The Woodlands TX Real Estate

I have relatives in Alabama who are going through something similar to this.  Great post Sally! 

Jun 22, 2010 07:33 AM #42
Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional
Charles Rutenberg Realty - Clearwater, FL
Palm Harbor, Dunedin, Clearwater, Safety Harbor

Sally - I wonder if these people ever think about Karma and the fact that they are ruining other people's lives..............

Jun 22, 2010 08:55 AM #43
Susan Neal
RE/MAX Gold, Fair Oaks - Fair Oaks, CA
Fair Oaks CA & Sacramento Area Real Estate Broker

Hi Sally - Short sales are further complicated by the fact that so many loans are not owned by the banks that are servicing them.  Bank of America, for example, owns only 4 percent of the loans they service.  So when you have a short sale with a B of A first and a B of A second, you have to satisfy the protocols of B of A, and then you have to satisfy the protocols of the investors who own the loans.  Of course we cannot negotiate directly with the investors, and they are the ones taking the hit on a short sale.  Some are more rigid than others, and we don't learn what their protocols are, just that we haven't satisfied them. 

Keep up the counteroffers, and eventually, you have a good chance of getting deficiencies waived.  I just closed on one that took three buyers, a long time, and a lot of work, and 10 counteroffers with the third buyer, but there is no deficiency, no promissory note and no reservation of right to collect.

I just had to keep fighting until I got what my sellers needed and what the buyers were capable of doing.  After all, that is what we're doing here, right?

Jun 25, 2010 06:14 PM #44
Renée Donohue~Home Photography
Savvy Home Pix - Allegan, MI
Western Michigan Real Estate Photographer

Sounds like a negotiator just making stuff up, nothing new.  I STILL sit here 3 years after this garbage started rolling down hill and shake my head at the shenanigans.

Jul 07, 2010 09:56 AM #45
Show All Comments

What's the reason you're reporting this blog entry?

Are you sure you want to report this blog entry as spam?


Celeste "SALLY" Cheeseman


Additional Information