Deed in Lieu or Short Sale

[Jim B.]

I currently have a Short Sale offer on my home. The offer leave a $57,000 short fall to Triad PMI Company. The offer from the PMI company today said they want me to sign a promissory note for $25,000. and pay $417. per month for 60 months, interest free.

I can possibly do a Deed in Lieu but I have heard of lenders and PMI companys billing the borrower for the difference between what is owed on the home Vs what they eventually sell the home for.

Can a borrower negotiate with the PMI company to forgive the entire shortfall and accept the current offer for the sale of the home without recourse? It seems the PMI company hs more to gain by not taking the home back through Deed in Lieu or forclosure. Any advice?

[faith]

Originally Posted by Jim B.

I currently have a Short Sale offer on my home. The offer leave a $57,000 short fall to Triad PMI Company. The offer from the PMI company today said they want me to sign a promissory note for $25,000. and pay $417. per month for 60 months, interest free.

I can possibly do a Deed in Lieu but I have heard of lenders and PMI companys billing the borrower for the difference between what is owed on the home Vs what they eventually sell the home for.

Can a borrower negotiate with the PMI company to forgive the entire shortfall and accept the current offer for the sale of the home without recourse? It seems the PMI company hs more to gain by not taking the home back through Deed in Lieu or forclosure. Any advice?

Jim B,
Welcome to this forum,
Are you in California and do you have a purchase money mortgage loan and has never refinanced. If your answer to these questions are yes to all of it, then you are covered by California Section 580b meaning your lender can not pursue you for any deficiency judgment against you.

Do you have first and 2nd mortgage with the same company,? If the answer is yes, it's easy to negotiate if your mortgage belongs to the same company. If it's different, then it will be tough. You can probably ask the buyer's offer to go up higher around $10,000 more to be applied to the 2nd mortgage, however, they might ask that amount to be applied to the buyer's closing costs.

Normally on Short Sale you need to negotiate now to the lender that you will not be liable for any deficiency judgment. Problem is, these lenders took a PMI(Private Mortgage Insurance) to protect themselves if the homeowners are not able to pay the loan. PMI companies used to pay the lenders of whatever they have insured the homes for, but because there are million homes that are at risk, they(PMI) companies are going after the seller. Make sure that they will put in writing during the esrow stating that they will not pursue any deficiency judgment against you.

If you owe $57,000 on the 2nd mortgage, the PMI company will ask you to sign the promissory note to protect them from any lawsuits from the seller because of anti deficiency laws which is called CA section 580b which is only applied to primary residence, purchase money mortgage and never refinanced.

You can settle and negotiate with the PMI for the 2nd loan start it with 20% of the balance, payable in 30 years no interest, that is if you want 30 years, but if you want it paid right away, they offered 5 years, tell them I would like to settle this loan 20% which is $11400 at $190 a month no interest. If they say no, then go higher, my final offer and I just want to get it off my back, how about 30%, payable in 6 years no interest, $57,000 x 30% equals $17,100/72 months =$$237.50, and putting it in writing stating that this is paid as agreed, settled in less than full balance and this is how they will report it to the credit bureaus and they will not pursue any deficiency judgment. You have to make it clear to them what you want, otherwise, if you don't know what to say they will take advantage of you.

You need to be bold, persistence, patience and arm yourself a lot information about Short Sale and how to deal with lenders and the PMI company's.

This website/forum thank God for Moe has a lot information that can help you find ways on how to do Short Sale. I am one of the successful Short Sale stories. I email my lender and negotiator 100 times and sent them 35 letters certified and emailed and sent letters to the President, CEO and higher ups of Countrywide.

I was also asked to sign a promissory note by the PMI company but with the help of God I was bold enough to say no, they can have the house, foreclose it and I rather file for bankruptcy. It took 4 months before the investor approved the Short Sale. The 2nd got $14k from the net proceeds of the sale price. The buyer made an extra offer to be applied to their closing costs, Fannie Maie paid for my agent's commission which is 5% and it did not cost me anything, I made sure that they put in writing that they will not pursue any deficiency judgment against me and I've got and also from the email that the negotiator sent me and the rest is history.

Thank God for Moe, *** and Prof Shays who gave me all the information I needed to have a successful short sale.

Please click the posts for Short Sale

Short Sale Outpost - Loan Modification Forum - LoanSafe.org

Hope this helps.

[cahomeowner]

regarding my investment property.

I have a 1st with wells fargo and PMI. we have been working on a short sale for over a year. the PMI company asked for a promissary note we declined. the file closed, we submitted a new offer. the 2nd time around (same negotiator) resulted with no promissary note.

question: I have a short sale approval and waiting for the closing docs. if a short sale results in a 1099 and a deed in lieu results in a 1099 then why do a deed in lieu???

[faith]

[cahomeowner;
I have a 1st with wells fargo and PMI. we have been working on a short sale for over a year. the PMI company asked for a promissary note we declined. the file closed, we submitted a new offer. the 2nd time around (same negotiator) resulted with no promissary note.

question: I have a short sale approval and waiting for the closing docs. if a short sale results in a 1099 and a deed in lieu results in a 1099 then why do a deed in lieu???[/quote]

CAhomeowner,
Short sale is far less destructive to your credit rating than a foreclosure or deed in lieu, as it is supposed to be listed as a “settled debt” on your credit report. However, it is still harmful to your credit score and can reduce it by 100- 200 points. It will relieve you of the burden as well as the cost, emotional strain and embarrassment of a messy foreclosure procedure

A deed-in- lieu is a faster solution than a short sale and that it is more likely to be acceptable to the lender. The ramifications to your credit score are about the same as the short sale. If the lender eventually sells the home for a price that doesn’t pay off the original mortgage amount, he can get a deficiency judgment and try to collect it from the homeowner. However, this doesn’t happen simply because he knows that there is no money to recover and that he will have to pay all the costs of the legal action.

You can negotiate to the lender about the deficiency judgment to be forgiven in Short Sale. In Deed in Lieu you voluntarily give the house to the lender. Lenders may or may not accept Deed in Lieu some said due to many foreclose homes. DIL is a less expensive and time consuming process for the lender than a full foreclosure action. In any case if the loan is a purchase money mortgage and never refinance the lender can not pursue the homeowner because of anti deficiency judgment called California Section 580b.

Any debt forgiven is considered income and required by IRS to be reported using 1099C. Once you get this form, you need to complete IRS form 982 to report how much the debt was forgiven by the lender. If you have not received the 1099C you have to call your lender and ask for your copy, it might be lost in the mail or they forgot to mail you one.
If you have not received the 1099C, you still have to complete IRS form 982 to put how much debt was forgiven by your lender. If you don’t they will assume that it is an income and you might pay a higher tax..

Here’s the link for IRS Debt Forgiveness Act

http://www.irs.gov/individuals/article/0,,id=179414,00.html