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Negotiating Deficiency is Key in a Short Sale

Discussion in 'Short Sale Outpost' started by Moe, Aug 17, 2008.

  1. Moe

    Moe Call 1-800-779-4547 Staff Member Loan Safe Mortgage

    Negotiating Deficiency is Key when atempting a short sale:

    With a short sale, the lender has three possible ways to handle the deficiency balance, which is the portion of the mortgage debt not covered by the sale of the home.

    First, the lender can attempt to collect the deficiency balance from the seller after the property has closed.

    Second, the lender may require the seller to sign an unsecured promissory note for the deficiency balance as a condition of agreeing to the short sale. If the new note is for less than the balance of the original debt, the difference would be considered canceled, or forgiven, debt.

    Third, the lender may agree to cancel the entire deficiency balance.

    You must negotiate for the release of both the property lien and the underlying personal debt secured by the note. If you fail to do this, the lender may not forgive the personal debt and it will become a collection.

    It is wise to consult with an Attorney or Real Estate Agent who is familiar with Short Sale negotiation and has significant experience working with lenders. Keep in mind that Attorney’s fees or Realtor fees come out of the lender’s net proceeds, therefore, you should not have to pay out of your own pocket for an Attorney or Realtor to assist you with the transaction.
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  2. Enrique

    Enrique LoanSafe Member

    Moe,

    I've hired a lawyer to help me with the negotiation of the settlement of the debt. I didn't know that the lender would pay for this. How does this work? I was expecting him to send me a bill.

    Enrique
  3. Moe

    Moe Call 1-800-779-4547 Staff Member Loan Safe Mortgage

    Hello Enrique,

    This can be billed to escrow when the home sales as a cost of selling the home and listed on the final closing statement ie: HUD. It depends on how your billing is set up with your lawyer. Maybe he is billing you in advance on fees? Hopefully, it's taken out at the sale.
  4. Enrique

    Enrique LoanSafe Member

    Thanks Moe. I'll have to look more into how to get the lender (BofA) to foot that bill. I've already forked out $1000 to the lawyer. Mabye I can get reimbursed.

    I have another question for you. In your post about short sales you say

    "You must negotiate for the release of both the property lien and the underlying personal debt secured by the note. If you fail to do this, the lender may not forgive the personal debt and it will become a collection."

    I am right at this crucial step in my short sale and I feel much uncertainty. The bank's offer to me for both the 1st and HELOC is to agree to release the lien and charge off the remaining debt as a collectable balance. Is this the situation you are talking about... that they are not forgiving the personal debt? They're giving me until 9/12/2008 to sign the agreement or the offer ends.

    -- Unsure and somewhat confused
  5. Moe

    Moe Call 1-800-779-4547 Staff Member Loan Safe Mortgage

    No problem Enrique!! My pleasure.

    Yes, this is what I am talking about (release of lien in exchange for a new personal debt). If you sign this they may be able to go after you for this balance which may include wage garnishments. Your attorney hopefully will do his due diligence and properly advise you to your rights.

    Best of luck!
  6. Enrique

    Enrique LoanSafe Member

    Well my lawyer sent a letter to each BofA department, one for the 1st and one for the HELOC. This was 2 weeks ago and there's been no response. I don't think they are going to settle the debt. I've pretty much lost hope for a short sale with BofA. It is very frustrating. :-(
  7. ShortinPA

    ShortinPA LoanSafe Member

    Enrique,

    I am in your same exact situation. Would you please post as to how you are doing, and what has happened the past month with your Bank of America situation?

    Much appreciated!
    -ShortinPA
  8. Enrique

    Enrique LoanSafe Member

    I didn't post what happened, but I mentioned it in another thread the other day.

    Basically, my lawyer wrote BOFA asking for clarification on what their intent was in their offer to me. BOFA never responded so I didn't feel confident in signing the letters. I am thinking now that I should have because I'm still in a tough spot with taxes due in April... I think I'm either going to walk away or attempt another short sale.
  9. sirkjeff

    sirkjeff LoanSafe Member

    Moe,

    Thanks for the site, I called country wide about doing a short sale. Ive been trying to sale the property in florida for over 2 years. it is consider a second home. Do you know of any attorneys in Tampa ? That can help with the short sale?
  10. Moe

    Moe Call 1-800-779-4547 Staff Member Loan Safe Mortgage

    sirkjeff,


    You would need to go the the Florida Bar Association attorney referral for a Real Estate attorney..............

    or

    www.naca.net
  11. Bridget Ann

    Bridget Ann LoanSafe Member

    Hi Moe,

    I have just received approval on a short sale with Washington Mutual. I had to move and I was trying to sell my house for a year and now it is finally going through at the end of this month.

    However, on the approval it says that Washington Mutual will accept $125k on the 2nd. Then the seller will need to contact the Recovery Department to work out payout arrangements on the 29k that is not covered by the sale.

    I have never been late on my payments with any of my loans. I even offered to pay 3k to help cover the deficiency for closing but that is all I have in savings right now. I definitely want to avoid paying the 29k and want to see how I can avoid paying this deficiency. This is a HELOC 2nd and it was not used to purchase the loan. However, I probably have done more than 30k in improvements and repair during the course of the last few years and getting it ready to sell. That is why I got the 2nd.

    What can I do now to get Wamu to not go after me? I don't want to hurt my credit with the deficiency. I realize the short sale doesn't help my credit but I absolutely have to sell b/c I cannot pay for 2 homes.

    My agent is experienced with short sales but I am still nervous on the deficiency and potential collections aspect.

    What can I do to get this waived/avoided? Thank you.

    Bridget
  12. snapple candy

    snapple candy LoanSafe Member

    Bridget,
    This is what Moe posted previously about short sales. I think you need to consult an attorney. You are in a precarious position and need some professional advice on this one so you dont get screwed by WAMU:

    Negotiating Deficiency is Key when atempting a short sale:

    With a short sale, the lender has three possible ways to handle the deficiency balance, which is the portion of the mortgage debt not covered by the sale of the home.

    First, the lender can attempt to collect the deficiency balance from the seller after the property has closed.

    Second, the lender may require the seller to sign an unsecured promissory note for the deficiency balance as a condition of agreeing to the short sale. If the new note is for less than the balance of the original debt, the difference would be considered canceled, or forgiven, debt.

    Third, the lender may agree to cancel the entire deficiency balance.

    You must negotiate for the release of both the property lien and the underlying personal debt secured by the note. If you fail to do this, the lender may not forgive the personal debt and it will become a collection.

    It is wise to consult with an Attorney or Real Estate Agent who is familiar with Short Sale negotiation and has significant experience working with lenders. Keep in mind that Attorney’s fees or Realtor fees come out of the lender’s net proceeds, therefore, you should not have to pay out of your own pocket for an Attorney or Realtor to assist you with the transaction.
  13. Irish Gal

    Irish Gal LoanSafe Member

    Hey Bridget,

    I agree w/ Snapple that you need to consult an attorney. You have to be very careful in who you choose for a real estate agent as many pose as experienced in short sales, but aren't necessarily. The traditional real estate market is dead so agents are all now trying to make a buck anywhere than can. They are all now saying they are loan modification experts, short sale experts, home stagers, foreclosure, experts, your best friend (!), etc. IF you choose an agent vs. attorney, ask them for stats re how many short sales they have CLOSED successfully (w/ full release of all liability), not just handled. Personally, I would go with a real estate attorney who is also a real estate broker. The lender pays for it so you might as well go w/ the higher level of service (legal). I consulted a great one in so cal who was not pleased w/ how local real estate agents were handling short sales with their clients. He felt many agents were giving (incorrect) legal advice they had no business giving, and he stressed the importance of getting full release of all liability the right way (as you are seeking). Many agents have no clue what they are talking about (IMO). Many of them contributed to the mess many of us are in too. I'd rather an atty get the $$$$ than an agent :D. And (like Snapple) I'm not a big fan of attys necessarily. I just dislike real estate agents more :D. AND, a good lawyer is worth it. In the future, I won't sneeze w/out consulting a lawyer first :eek:. Good luck.
  14. Irish Gal

    Irish Gal LoanSafe Member

    P.S. I don't think Moe lurks in this thread much. He is extremely busy these days and I haven't seen him comment on most threads for a long time. Just an FYI.
  15. emeselle

    emeselle LoanSafe Member

    I am nearing the end of my short sale. In order to close, Countrywide is stating that the owner of the loan requires that I sign a promissory note for $15k or come up with $7k cash to cover a portion of their loss. My question is, can CW still come after me for the remainder of the balance? The difference between the selling price and what I owe is over $100k.

    I have the $7k (although it's wiping out my savings) and would much rather pay this than sign the note. The short sale approval letter is a little unclear to me. I still need to talk to my realtor, but I thought maybe you folks might have some insight for me in the meantime.
  16. Moe

    Moe Call 1-800-779-4547 Staff Member Loan Safe Mortgage

    You would need to ask these questions of either your realtor...........but better than that, you may want to consult and ask your questions of a real estate attorney familiar with the deficiency laws of your state............you can retain them for a half hour or an hour........or they may just be able to answer your questions in a phone consult.
  17. needhelp-GA

    needhelp-GA LoanSafe Member

    URGENT HELP - suppose to sign short sale offer

    Hello. I'm in GA, a recourse state. I thought it would be in our best interest to attempt a short-sale so that the HELOC would get some money and be less of a judgment or forgiveness for the 1099-C. I will not sign a promisory note.

    Right now, we have a low-ball offer, but the buyer does expect to have to pay more when the bank counteroffers (if they counteroffer). Since the 2nd is a HELOC and the low-ball covers absolutely none of it, it is likely they will just decline altogether.

    As far as a deficiency judgment goes, are we better off with a short-sale (if lender approved), or are we better off just letting it foreclose?

    It is possible that we are insolvent and can do a 982 form, but I have to get BPO's, etc. to prove we don't have assets in either of our two homes. The home approaching foreclosure is our primary home, but our HELOC isn't protected under that law.

    Thank you in advance for your experienced opinions.
  18. Moe

    Moe Call 1-800-779-4547 Staff Member Loan Safe Mortgage

    see post right above yours............you have questions that would need to be answered by an attorney.
  19. needhelp-GA

    needhelp-GA LoanSafe Member

    Thank you. I guess we'll continue with the short-sale process. Then if the bank actually offers an agreement, we'll hire an attorney to look at it to make sure we aren't getting in a worse situation.

    Thanks for the input.
  20. rgzing

    rgzing LoanSafe Member

    Chase called today and said that if the short sale is approved I might have to sign a promissory note for the deficeintcy. I am unemployed and I have nothing of value. I have sold all assets trying to keep from foreclosure until my home sold. So I sign a pomissory not what is be problem it is as good as the paper it is written on. Which is not any better than what is in my bathroom. 18 months of hell has brought me to a point where I will do anything just to get out. Then pick up the pieces afterwards. I would rather bankrupt after I have all the summary judgements, promissory notes, debt collectors all coming after me for a set amount than have them pop up after things are done, discharged and over. Am I crazy? What do you do 50 years old and everything I have worked for is gone in 18 months. I feel there is nothing else to lose. Every crook, underhanded attempt to take more away has come after me. Loan motificartion or DIL "professionals" wanting $7k to assist. Attorney for the HOA charging $5k for collection fee. HOA charging $6k in one month for late fees and a total so far over $10k, Chase wanting a promissory note of $100k, on and on. The fees are going to be close to $100k before this thing is over. Sad part is Chase was given $30 billion in tax payers money. Seems as though they are making out like a champ. Getting tax money and home owners into a pomissory note for shortage. Now I am suppose to be concerned? I am drained, broke, broken, and so lost that I have no more fight, no more energy. 18+ months of begging, jumping through hoops, credit counseling, and more. Here I am just finish this and I will fight another day. Living in a friends basement, mowing yards, cleaning houses, with 1000 resumes sent out. When I come back it will be with a vengence and I will have my day.

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