PNC and the Short Sale Deficiency Agreement: What Does It Mean in California?

I hesitated tackling a topic about the PNC short sale deficiency agreement because I do not want my readers to think that I am giving legal advice when I am not. However, it's such a big deal for a Sacramento short sale agent these past few years, that I thought I would go on record. First, I am not a lawyer, and I do not give legal advice, but I do have a personal opinion and real-life stories about PNC short sales and its short sale deficiency agreement. I welcome discussion.

I always tell my PNC short sale sellers that I cannot tell them to sign the short sale deficiency agreement and I cannot tell them to not sign it. They need to seek legal advice. That's what lawyers are for. If I could get away with it, personally, I would not want to sign such a thing, but on the other hand, what does it really mean? That's what people want to know.

For starters, it says unless prohibited by law. Let me say that my understanding is Section 580e of the California Civil Code is pertinent only to first mortgages. It does not pertain to second mortgages. Therefore a deficiency judgment is prohibited by law for a first mortgage in a California short sale but not for a second mortgage. It is the second mortgage that is the cause for concern.

There is also legislation pending -- which was rejected last year and we're trying again this year -- that would protect sellers with second loans in certain types of circumstances but not cash-out refinances. Foreclosure laws are not short sale laws. Short sales are different. So let's just presume that "unless prohibited by law" means nothing with regards to a junior loan and, if 580e is challenged, could mean nothing pertaining to a first.

PNC wants that verbiage signed to look at the short sale package. If a seller doesn't sign it, will PNC look at the short sale? Maybe, maybe not. I've had it go both ways. PNC is not consistent. Unless you call being an absolute nightmare to work with on a short sale inconsistent.

Here is my non-legal take. That short sale deficiency agreement with PNC is meaningless. Its purpose is to intimidate. It holds water only if a seller completes the short sale without a formal release of liability. In most of my short sales, the seller obtains a formal release of liability.

A seller is never obligated to complete a short sale in California if the seller cannot come to a mutual agreement concerning release of liability at the time of short sale approval. What really happens is PNC asks for a seller contribution prior to approval. The seller agrees to the contribution only if PNC releases them. PNC agrees. When PNC releases the seller from liability, the approval agreement trumps. If PNC were to refuse, then the seller does not complete the short sale and lets the home go to foreclosure. The agreement is specific to a short sale.

I've had it go both ways. Sometimes, regardless of an executed short sale deficiency agreement, PNC will release the seller from liability prior to closing the short sale. Sometimes, a mutual agreement is impossible to reach at the end and the seller does not complete the short sale. Either way, the PNC short sale deficiency agreement in these 2 situations is worthless. Don't be intimidated. Wise up. Fight back.

Verbiage capture: PNC short sale deficiency agreement, PNC Bank

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Certified HAFA Specialist

 

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Elizabeth Weintraub is an author, home buying columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout Sacramento. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you. Broker-Associate at Lyon Real Estate. DRE License # 00697006.

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