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NEW PNC SHORT SALE DEFICIENCY AGREEMENT TO PAY FORM

By
Real Estate Attorney with THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY

PNC has issued a new mandatory form that must be signed if a borrower is doing a short sale.  The Seller/Borrower must sign a statement that says, “I/we agree to remain responsible for the payment of the remaining balance on my/our Account pursuant to the terms of my/our note or line of credit agreement”.

Before you read anything further, please take a moment and go down to the bottom and look at the form.  It is in 3 parts containing 3 separate boxes of statements.  The first box is the SHORT SALE DEFICIENCY AGREEMENT.  I will discuss this later in this blog.

The next (middle) box is the AUTHORIZATION TO CLOSE LINE OF CREDIT which would only be applicable to there being a home equity line or “signature line” of credit.  This type of statement is usually obtained from the Seller/Borrower in some affidavit form by most closing agents as it is necessary to clear title.  The form is then sent to the lender prior to the actual closing occurring so there is no post closing drawing on the line of credit, which was supposed to be closed and released.

The last box is the REALTOR OR THIRD PARTY AUTHORIZATION.  This form is typical, although somewhat abbreviated probably so it all fits on one sheet of paper with the other items. But there is one ominous additional sentence that you never saw before and it takes me back to the first box at the top of the form.  The language in the box explains what a short sale is and then says, “If the borrower [the seller] or the [Seller/]Borrower Representative and PNC Bank are able to mutually agree upon the terms of a Short Sale, unless prohibited by applicable law the [seller/]borrower(s) will remain responsible for the remaining Account balance after the agreed upon amount has been applied to the Account”. 

Back to the first box, the SHORT SALE DEFICIENCY AGREEMENT – This new document was puzzling to me and how to use it, since most seller/borrowers want (but don’t always get) a short sale with a complete waiver of deficiency.  So without being bashful, I asked PNC what to do if the seller/borrower wanted or needed a deficiency waiver.

The answer from PNC was somewhat cryptic (no surprise) but said I should just cross out the top section of the form.  The response did not address the sentence in the Third Party Authorization section, but we will cross that one out too and see what happens.

The actual response says, “If it is a lien release only (the settlement amount will be lower) then they will be responsible. If it is Settlement then they will not be responsible for the balance (settlement amount will be higher). If they want the 2nd option you are able to cross off the top portion-that is the only part you are allowed to alter.”

Like I said, that does not quite do the trick since there is that same sentence in the bottom section, so I am going to have to "alter".  My further inquiry was about what PNC meant by “Settlement”.  The answer was that the borrower should, “come up with a settlement agreement that the borrower is agreeing to pay one lump sum and then the remainder of the deficiency balance is waived.”  So I can’t tell if that is a situation where the sale proceeds are the “lump sum” or if there is expected to be some contribution besides the sale proceeds as the “lump sum”.  This form may have something to do with the Standard Short Sale rules by Freddie Mac (see their flyer) that became effective November 1, 2012.  One new rule is that Seller/Borrowers that are less than 31 days delinquent must make a cash contribution to the loss. But the new Standard Short Sale also says that 90+ day delinquencies should be given a waiver of deficiency.  So it would seem there is quite a conflict in this form.

This new lender created form is a further evolution being attempted by a major lender / servicer in the short sale process and debt resolution environment.  Please let us know of any experiences you have in this regard with PNC and this new form.

The actual form is presented here for your review.

 PNC SS

_________________________________

© 2012 Richard P Zaretsky, Esq.

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide! Shortsales@Florida-Counsel.com New Website www.Florida-Counsel.com.

See our easy to find articles at

TABLE OF CONTENTS - SHORT SALE

AND LOAN MODIFICATION ARTICLES

Beth Atalay
Cam Realty and Property Management - Clermont, FL
Cam Realty of Clermont FL

Richard, I have a Short Sale with PNC right now, Sellers refused to sign the form, I'm waiting to see what happens.

Nov 03, 2012 05:38 AM
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Ray - 

Interesting.  We have done other PNC deals but this is the first time they produced this particular form

Nov 03, 2012 05:46 AM
Satar Naghshineh
Satar - Amiri Property and Financial Services Corp. - Irvine, CA

I am not sure what the concern is all about. This seems no different than the anti-defficiency waiver on the old BofA approval letters. PNC is basically saying if there is legal recourse to go after the borrower, then they will retain the right. Even the answer you got from PNC is correct.

Nov 03, 2012 06:08 AM
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Satar - It is not a concern more than a position the lender is taking in this "form" that says to the borrower that they are not getting any waiver of deficiency.

A seller/borrower knowing the options and which one to take is most important in the workout of distressed borrowers.  If the borrower knows that there is going to be a deficiency, then he also knows two things: the first is that there will be no income tax implication (this will become more important if the 2007 Mortgage Debt Forgiveness Act is not extended); and second whether bankruptcy or planning for bankruptcy is a necessary route to be taken.

Nov 03, 2012 06:25 AM
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Richard, as an aside - where are we on the Mortgage Debt Forgiveness Act being forgiven? It is silent - guess everyone is waiting until the election is over. Thanks for sharing this form from PNC.

Nov 03, 2012 06:42 AM
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Frank and Sharon

Watch for my article tomorrow where this issue will be discussed.

Nov 03, 2012 06:56 AM
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

I'm laughing out loud.  Satar is using BofA as an example of a "best practice"?????

Nov 03, 2012 07:04 AM
Charlie Dresen
The Group, Inc - Steamboat Springs, CO
Steamboat Springs, CO e-Pro

I think that this form is going to cause a lot of problems. I had not yet heard of this.   Thanks for sharing.

Nov 03, 2012 07:17 AM
Ron Dobrosielski
Keller Williams Realty - Beverly, MA

Good post on PNC short sales. Working with short sales are tough I can't wait till they're all gone. 

Nov 03, 2012 07:20 AM
Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

Thanks for the information. I may have a PNC short sale client . I will bookmark this post.

Nov 03, 2012 08:09 AM
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

Richard -- thank you for keeping us up on various forms the different banks are trying to foist upon their clients, without really having solid footing for all of their actions.

Nov 03, 2012 10:30 AM
Leslie Ebersole
Swanepoel T3 Group - Saint Charles, IL
I help brokers build businesses they love.

Grateful that here in IL -- like FL -- we use attorneys for real estate transactions. Your post is a perfect example of why most real estate agents shouldn't negotiate short sales. 

Nov 03, 2012 11:50 AM
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

Richard - Interesting.  I wonder whether they'll require it here in California, where lenders waive deficiencies rights in short sales in almost all cases.

Nov 03, 2012 02:30 PM
Lynn B. Friedman CRS Atlanta, GA 404-617-6375
Atlanta Homes ODAT Realty - Love our Great City - Love our Clients! Buckhead - Midtown - Westside - Atlanta, GA
Concierge Service for Our Atlanta Sellers & Buyers

Dear Richard,

Thanks for the complete explanation.
I always find it a bit strange that one person at the Lender will authorize someone to " just cross out the top section of the form". What happens when the next employee reviews the form and points out that you are not allowed to  just cross out ?
Have a happy day -
Lynn  

PS  Shout out to your post in my post today. L.

Nov 03, 2012 02:45 PM
Bill and MaryAnn Wagner
Wagner Real Estate Group - Ocean City, NJ
Jersey Shore and South Jersey Real Estate

Richard,

Thanks for the heads up on PNC changes.

Bill

Nov 03, 2012 08:48 PM
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Christine - the preface language says, "unless prohibited by applicable law...".

California and 7 other states have special deficiency / recourse rules regarding purchase money mortgage first mortage loans.  That is what the language qualifier is about.

Nov 03, 2012 10:42 PM
Melissa Zavala
Broadpoint Properties - Escondido, CA
Broker, Escondido Real Estate, San Diego County

PNC has never been easy to deal with, and I am relieved that California folks will not be impacted by this form.

Nov 03, 2012 11:52 PM
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Thanks for this great info Richard. Receiving a deficiency waiver is very important to Florida short sellers. I'm dealing with PNC right now and this far have not had to use this form. But I'm sure they will be sending it over soon.

Nov 04, 2012 12:02 AM
Gloria Commiso
Keller Williams - Hermosa Beach, CA
Hermosa Beach

thanks for sharing this was a well written post.....by the time we read this the rules and required documentation may change

Nov 04, 2012 03:34 AM
Satar Naghshineh
Satar - Amiri Property and Financial Services Corp. - Irvine, CA

I understand what you are saying, just still confused as to why you find this position alarming.  They are not telling you anything new.

 

Nov 07, 2012 07:00 AM