LENDER SHORT SALE ACCEPTANCE LETTER EXAMPLES - READ WITH CAUTION!

By
Real Estate Attorney with THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY
https://activerain.com/droplet/hR2

What is a short sale?  When giving lectures I like to use the definition as follows:

The sale of a real estate property for a price that is less than the total amount necessary to fully satisfy the actual present encumbrance (mortgage) indebtedness on the real estate property.

Often I see a different description, one that says, The sale of real estate when the lender accepts less than its mortgage amount and forgives borrower from paying the deficiency.

Which is correct?  A look at the short sale acceptance letters lender's provide is going to tell us the real truth about short sales and forgiveness of deficiencies.  This article will discuss examples of short sale acceptance letters.  Read carefully, as you will probably be surprised!

Before going on, it is important that you have read and understood the concept of a promissory note and of a mortgage which secures the promissory note.  See my article which explains it at A LAWYER'S EXPLANATION OF THE FORECLOSURE PROCESS.

Here is Example #1 of a short sale acceptance letter:

ASC Acceptance Letter

 

You will notice that the letter says this is an acceptance of a short sale.  It says if all the things in 1 thru 5 are done the mortgage will be discharged and a release document will be provided to be recorded and the foreclosure dismissed.  There is no mention of any cancellation of the promissory note.  In this example there is no forgiveness of any deficiency.

See this next example from Bank of America the language is different.

BAnk Of America Letter

Here, the letter says the deficiency balance will be reported to credit bureaus as "charge off" and the liability for the deficiency balance is "to be determined".  This is confusing but what it means is that (1) there is a deficiency and (2) the lender will later determine what to do about the deficiency.

Next, is a 2 page letter from Countrywide.

Countrywide Short Sale page 1

Countrywide Short Sale Letter page 2

This letter is the most definitive from the three presented.  At paragraph 9 it clearly states that there is no promissory note required from the borrower.  When taken with paragraph 13, it is clear that Countrywide will not pursue a deficiency judgment if the short sale closes.  Thus in the example presented there is no deficiency that will be collected.

This last example from Chase was not as simple.

Chase Short Sale Letter

Here it says that Chase will release its security interest (the mortgage) and forgive any deficiency balance but then says that the payment of $1,000 is only for the release of the security interest only.  This I would understand to mean the mortgage and not the promissory note.  At the bottom of the page (but not part of the letter) is a notation "Short Sale No Def.doc".  So I sent an email to Chase about this discrepancy and they confirmed - in writing - that it was a waiver of any deficiency.

Be very careful where you see language like "release and satisfaction" of the mortgage.  What about the promissory note?  That language almost always means that the lender is NOT giving a forgiveness of the financial obligation and has the option to pursue the deficiency for years to come. See FORECLOSURE DEFICIENCY JUDGMENT or SHORT SALE PROMISSORY NOTE or BANKRUPTCY - REVISITED.

In summary, it is most important that you read and question the short sale approval letter you get.  A "release and satisfaction" of a mortgage is NOT necessarily a cancellation of the promissory note (forgiveness of deficiency).  The letter from the lender should be clear and unequivocal and not subject to supposition or interpretation.  If you are uncertain, don't be bashful - ask the lender for clarification and get it in writing!

NOTE: THIS ARTICLE HAS BEEN UPDATED AS TO BANK OF AMERICA SHORT SALE LETTERS at BANK OF AMERICA SHORT SALE APPROVAL LETTER CHANGES

Copyright 2009 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 Need Short Sale Information? - These Articles Probably Answer Your Question

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Sacramento Grapevine 02/04/2009 12:16 AM
  2. Sergio Rebollo Jr. 02/08/2009 10:30 PM
Topic:
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Location:
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PALM BEACH COUNTY SHORT SALES
Tags:
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Rainmaker
526,217
Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
"It's Wendy... It's Sold!"

Richard - Those are great examples.   What would you suggest when there is an open-ended potential to seek the deficiency, like BOFA example?  Am I correct in thinking the seller should just accept, as their only alternative might be bankruptcy, especially in cases where deed-in-lieu in not possible?  Thank you for any edification.

Feb 04, 2009 10:20 AM #4
Rainmaker
540,593
Sergio Rebollo Jr.
Real Estate TeamMates - Miami, FL

Richard...thanks for sharing the different scenarios.  I'll stick around for additional comments.

Feb 08, 2009 10:29 PM #5
Anonymous
Paul

Very informative comment, I think many people involved in the short sale process, from realtors to borrowers to attorneys, do not focus enough on the elimination or reduction of the deficiency.  This is especially true in those states where a deficiency is minimized or not available, and in the short sale process the borrower may be exposing themselves to a deficiency the lender could not obtain in a foreclosure.

Mar 02, 2009 12:42 AM #6
Rainer
32,233
Sidney Jimenez
Keller Williams - Miramar, FL
CDPE, Short Sale Expert, 954-665-9449,

PAUL,

A deficiency in a foreclosure is often greater than in a Short Sale because the lenders include all the expenses associated with the foreclosure and subsequent sale, including court costs, lawyer fees, real estate commissions, ect...ect.

Mar 02, 2009 06:48 AM #7
Anonymous
Laura Tucker

I wanted to know if you have an example of the financial statement that my mortgage company is asking for to prove that we need to short sale our property.  I have the hardship letter pretty much done but I don't know anything about the financial statement part.  We already have a buyer to I need to get this done pretty quick.  If you don't know, could you refer me to a place/person that might?  This is a very stressfull thing we are doing but we are both in the auto industry and have taken a major hit on our credit.  Thanking you in advance.

Laura Tucker

Mar 26, 2009 09:37 AM #8
Rainer
32,233
Sidney Jimenez
Keller Williams - Miramar, FL
CDPE, Short Sale Expert, 954-665-9449,

LAURA,

You can call me for the form.

Mar 26, 2009 09:57 AM #9
Anonymous
mina

Sir, I am in a big mess our business property is being sold for short sale. Mortgage amount of 3.3 mil going to be sold for approx 1 mil how will my 1099 affect me, when I don't have money to pay bills and now I will have to pay a huge amount to IRS????

Can you please advice asap. I am in Alabama.

Mina

Jun 20, 2009 12:20 PM #10
Rainmaker
281,515
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Mina

You are in one of the few instances where a bankruptcy should be examined rather than a short sale or loan modification.

Here is the problem from your brief description:  You cannot pay the deficiency, even over time (so you say) and you cannot pay the income tax (also over time since the IRS can make term payments available to you).  IF you simply cannot deal with the forgiveness of debt (the 1099C) then you need to avoid it.  There are only 2 ways to avoid the 1099C -- pay the deficiency or sign a promissory note or agree to continue paying on the existing note, or file bankruptcy BEFORE the short sale.

Timing is critical.  You must consult with a tax or bankruptcy attorney or both immediately!

Jun 22, 2009 11:20 PM #11
Rainmaker
526,217
Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
"It's Wendy... It's Sold!"

Richard - It is my understanding that bankruptcy will only delay foreclosures, not prevent them, unless there is a repayment plan-type bankrupcty like Chapter 13, and the borrower is able to make payments, correct?  The bankrupcty court is not interesting in taking an asset with negative equity- is that right?  Thank you for clarifying.

Jun 23, 2009 01:18 AM #12
Rainmaker
281,515
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Wendy -

Bankruptcy in a chapter 7 liquidation will not permanently stop a foreclosure but it will delay it - for 30 or 60 days.  If the borrower wants to keep the house out of foreclosure then the payments must be timely made.

A Chapter 13 bankruptcy could allow the 2nd mortgage to be reduced as to SECURED principal and the balance would become a general creditor debt. The mortgages must be kept current to prevent a foreclosure.

In both situations the borrower is relieved from personal obligation for any deficiency so the loans become non-recourse. 

Jun 23, 2009 04:44 AM #13
Anonymous
Arun Dev

Richard,

 

I have recieved the Bank of America letter and don't know what to do. What's the point of doing the short sale if BOFA retains the right to come after me for the deficiency at a later date?  By me signing the note it gives BOFA 6 years to come after me for the deficeny. Basically, they're saying we'll let you sell the house, but we won't forget the debt.  Also, the MI company wants me to sign a seperate 25K note!

This being my primary home, it seems better for me to foreclose and take my chances because in NV the lender only has 6 months to sue me for the deficiency from the date of the sale.

 

Please advise.

Oct 14, 2009 01:30 PM #14
Rainmaker
281,515
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Arun

I am not familiar with the laws of Nevada - but you need to consider 2 laws, not just one.

The first law is the matter of the deficiency IN the foreclosure sale - that is the law you refer to.

The second law is the unpaid portion of the promissory note.  That can be brought as a separate breach of contract action and a separate and longer right to sue (statute of limitations) is used for that right of action.  The start point for that statute of limitation would likely be the date you were declared in default of the promissory note.  You need to determine the time limit on that possible action as well.

Lastly, under both scenarios you will likely have a "second bite of the apple" - meaning you will have other opportunities to negotiate a settlement on the balance of that unpaid balance.  Understand though that a judgment that carries a statory interest rate every year is far more valuable to a holder of that judgment than a non-interest bearing promissory note they are offering to you now. (Be sure it has no interest as that makes it far less valuable to the holder because of something called Net Present Value).

Oct 22, 2009 10:06 PM #15
Anonymous
Acceptance Letters

This sample letters arevery helpful. Can you please mail me some sample Acceptance Letters. I am in search of Acceptance letters from the last 3 days. I found many sites but could not find the appropriate one.

Dec 14, 2009 04:14 PM #16
Anonymous
mic

Richard ,i have homestead property in Florida with a purchase price mortgage currently on foreclosure,can the bank sue me for deficiency after it foreclose the property,is shortsale an option please help

Feb 18, 2010 06:19 AM #17
Anonymous
Anca

Hello Richard

I am having a hard time making up my mind on what to do.  Maybe you can point me in the right direction.  In 2005 I refinanced my home in Orlando and got a second mortgage.  My first mortgage is an arm and up until now I have been paying my mortgage payments.  My first mortgage is for 203000 and second is for 49000.  In 2006 I had to leave the country for a family emergency where my father passed away with cancer and I rented my home.  I was lucky I was able to rent my home in Nov of 2006.  I have had the same renters in there since then.  Now that I am back I had no work in Florida or my husband and moved out of state because my husband had a job offer.  I am still unemployed and still looking.  I spoke to my mortgage company to do a loan modification and they put me on a trial payment which I have been paying.  I get a letter in March saying I owe 3000 because I am not approved for a loan mod because my house is rented.  So I said if I move back in the home would you be able to do a loan mod then.  They should be lucky that I was and always was a good payer but now I just can't afford it.  My first and second mortgage is over 2200 and the rent is 1250 and I still have to pay so much out of pocket and I am not employed.  We got our house in Dec of 2009 in the state where we are now living and that is another mortgage.  It's not like I don't want to keep my Orlando home especially knowing that my renters want to stay but I don't have money.  Both my mortgage companies will take a short sale which I am scaried to do because I don't know how it works, how much taxes I have to pay, what costs I have to pay, and I don't want the banks to come back after me.  My house is now valued at 150000 and that is a big difference.  I owe 203000+49000=252000, and the value is at 150000.that is a difference of 102000.  Alot of money.  What should I consider doing bankruptcy, foreclosure or short sale?  If I file for bankruptcy will it affect my husband I am on the mortgages.  Where do I file?  Will it affect the property that I currently have which my husband is on the mortgage but I am also on the warranty deed as he is on the warranty deed on the florida home.  Any info and right direction would be greatly appreciated.

 

Thank You..

Anca

Apr 20, 2010 03:13 PM #19
Rainmaker
281,515
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Anca -

You need to communicate with us confidentially - email me at RPZ99@FLORIDA-COUNSEL.COM

Apr 21, 2010 12:09 AM #20
Anonymous
Richard

I sent an email describing my question I hope you have time to respond

May 14, 2010 01:01 PM #21
Rainmaker
281,515
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Richard - I see no email from you.

May 15, 2010 01:26 AM #22
Rainer
550
Mike sylavan

Recently, i closed a short sale... attached is the lender's approval letter.... can lender pusue defficiency based on the letter... I will appreciate your feedback. Thanks.

Jun 10, 2010 03:47 PM #24
Rainmaker
281,515
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Mike Sylavan -

Your scanned letter only states discharge of a mortgage / home equity - nothing more. This should be interpreted by your title closing agent as a way to clear the title.  However, the letter says nothing as to any of the issues that would surrond a forgiveness of the deficiency. 

None of the telltail hints that it may be a deficiency release are present (no warning of tax consequences, no specific statement of liabiliity, no statement of satisfaction, etc.).

You must therefore consider this to be a reservation of liability on the note. 

The letter is from a credit union.  CU letters are notoriously vague perhaps because the lender is small and does not invest in the resources of an attorney when they are already experiencing a loss.  In such cases we ususally just call up and ask for a definitive statement one way or the other what the final outcome is expected to be by the lender, and put it in writing - or negotiate what it will be.

Good Luck!

Jun 11, 2010 01:17 AM #25
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