Negotiating Deficiency is Key in a Short Sale

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

  1. kidsandliz

    kidsandliz LoanSafe Member

    OK so this is weird - saw my credit reports (My credit card number was stolen so got all 3) and it looks like $31,000+ was "written off" but I still "owe" $18,000+ due 2022. Except they have never billed me for any of this. AND no one ever sent me anything about these actions. Ever. No bills, no notice about changes to the account…nothing. All of the deficiency was supposed to be written off but wasn't (turns out the agent lied to me as he was just supposed to let the house foreclose rather than have a short sale if they were going to make me owe the deficiency, struggling to find an attorney to sue him - he is a big fish in a small town so "conflict of interest" there and in surrounding towns and no one wants to travel there from the bigger cities. Sigh). So I call the lender and they claim I don't get a 1099c for the $31,000 (that they agree with my credit reports that they "charged off" - although the never told me this). That strikes me as very odd. Anyone have any clue what is going on with this? I couldn't get a coherent explanation from the lender but didn't want to push it because I didn't want them to try to collect. I think the rules in the state the house was (Idaho, I now live 2500 miles away) is that if they make no effort to collect in 5 years I am off the hook? What implications does this all have for when I should be getting a 1099c? Was hoping to have them all by the end of 2013 since it wouldn't be counted as income due to this used to be my primary residence… and as far as I know that rule is not extended beyond that.
  2. kidsandliz

    kidsandliz LoanSafe Member

    AND GET IN WRITING that the deficiency will be excused. I was in foreclosure with a short sale pending. Agent was supposed to let it foreclose (due to deficiency collection rules on a foreclosure in ID - 3 mo to come after me and that was all) if the deficiency would not be forgiven. He lied, I sold short. Now I am on the hook for the deficiency. In retrospect I should have asked to see the statement from the lender that the deficiency would be forgiven rather than believe the agent.
  3. cmsatter

    cmsatter LoanSafe Member

    Thanks, I found some other sites that basically said they same thing in regards to the 1009-C; the bank would/should formally have to amend their corp returns in order seek a deficiency on a loan they wrote off as a loss.

    I looked into insolvency and don't think we would qualify for it on my wife's short sale in 2013. Probably could have in 2010 when I sold my house but would need to go back and amend our 2010 and 2011 returns to claim that instead of using the mortgage debt forgiveness. Not sure if that would draw a red flag with IRS? We definitely made her home our primary residence from summer 2010 (when I sold my home) until it was sold in April 2013. Is there a time limit on how long you need to live in a home to make it your primary residence? I'm not seeing a specific amount of time in the IRS 4681 publication. We lived in the home when it was sold, no address changes or anything like that (our 2010 and 2011 taxes were all filled with that homes address. 2012's were not because we had sold the home before we filled).
  4. amelialynn

    amelialynn LoanSafe Member

    It's a been a while since I posted to these boards. Originally wanted to walk away, but have stayed in the house to try and "do the right thing". My deal is 16 months behind on my house, 80/20 bought in 2006, 80% is now being serviced by Specialized Loan Servicing, LLC (SLS) (was originally with Bank of America [BOA])and the 20% is still with BOA.

    I listed the house for HAFA short sale at the end of May of this year (2014). Had 10 showings in 7 days and then an offer followed within the 1st week of it being listed. Offer was for $3 grand below list price.

    Offer submitted to the 1st lender (SLS) and they countered, buyer came up to the BPO appraised value. I was thrilled. Offer sent to underwriting, investor, etc. After 30 days we got an approval letter stating that they would pay the 2nd lender $1,500. The the HUD-1 was sent to the 2nd for their approval letter. That was about2-3 weeks ago. BOA stated at that time that they would not accept anything less than $8,500 with a HAFA short sale. Realtor has tried to negotiate, but BOA won't budge. Information was sent to SLS stating that BOA would not take less than $8,500 to see if their investor will agree. That was just done a few days ago.

    Here's my issue.

    My realtor now wants me to agree to doing a traditional short sale if the banks can't agree to the HAFA amounts. The only reason I decided to do a short sale was because of the HAFA program and the rules that are in place which protect the seller, the most important to be being that they have to waive their rights to any deficiencies and they cannot require that I bring money to closing. I've expressed this to my reatlor (on several occasions prior to listing the house, during and now again after we got an offer).

    She now wants to move forward with the traditional short sale stating: "The assumption BOA or SLS will do a deficiency in the case of a traditional short sale is inaccurate. The $8500 controversy surrounding the HAFA short sale involves investor guidelines on the part of BOA. It is still possible for debt forgiveness with a traditional short sale, I have done many. However, you will, be susceptible to a judgement if you opt out for foreclosure. Foreclosure only addresses the first not the second. If you go with a traditional, it will take an extra two weeks but we should be able to provide an approval letter from both that will show no deficiency. C. If we go traditional, you would not be required to live in the home until closing. HAFA requires you do.

    The review will take 2 weeks, if we go traditional it would take another 2 weeks so we are looking at 4 weeks maximum. As a reminder, you will be able to review the approval documents so there would be no surprises at closing. There is no way you would be tricked into signing anything you don't read first or have time to understand."

    To me, this means that the banks can change things last minute, demand I contribute money to closing, leave out critical information about the deficiency and I will be so desperate to close that I would sign anything placed in front of me in order to be done with this mess. I've been reading all of the posts on this particular thread and I would like your feedback, good or bad, positive or negative, about what you think might take place here. I'm thinking that my realtor, having spent time on this sale, wants only to close the deal. That worries me.

    My gut tells me that going with a traditional short sale, even pursuing one, would not be in my best interest. I've told my realtor that it's either the HAFA short sale or nothing. The banks can foreclose. I've been waiting around in this house for 16 months for the banks to figure out what they need to do. \

    I've waited for the banks to foreclose after missing my first payment last Spring/Summer but instead they sold the loan to SLS, then tried a loan mod with SLS and got the "lost paperwork" run around, and now I feel like a short sale is a big waste of time.

    Anyone's thoughts would be greatly appreciated.
    Last edited by a moderator: Jul 16, 2014
  5. kidsandliz

    kidsandliz LoanSafe Member

    Amelianlynn Because you have given an ultimatum it may be that the second will cave at the last second and accept due to the likelihood of them getting nothing if you foreclose. My lenders finally came to an agreement the day prior to when my house was to be auctioned and so I sold short.

    Below includes a question of mine:

    BUT I was lied to by my agent, who obviously had a vested interest in selling rather than foreclosure as he knew I would not sell if I owed the deficiency due to the state rules on deficiencies. He said they excused it and they did not (tried to sue him and no one would take him on since he was everyone's best buds). The first wrote it off a year later, the second (I had an 80/15) claims I owe it in 2022? WTF? They are not coming after me and my reading of the state law (Idaho) is that if they make no attempts to collect in 5 years then they can't. House sold Jan 2011 so 18 more months and I am safe. I think anyway.

    Does anyone know what you do once the statue of limitations has passed to collect, if anything? I see this all blowing up in 2022 when they say I owe a balloon payment (ignoring that I haven't been paying all along) and want to be sure I have all my ducks in a row prior to then so that they then don't try to come after me, have my credit tank again...
  6. amelialynn

    amelialynn LoanSafe Member

    I doubt that there will be many (if any) people that will be able to answer this since the timeline for these deficiency debacles has yet to expire. Have you ever spoken with a real estate attorney regarding your situation?
  7. Moe Bedard

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

    Amelianlynn, a short sale is often treated just like a foreclosure in regards to deficiency laws and these laws are different in most states. If you can negotiate that they cannot go after your for a deficiency, then great. However, Realtors will often say whatever they can to make the sale because they are only paid on commissions.

    What state are you in again?

    For example, here are the California laws:

    Deficiency Judgments on Junior Liens (Second Mortgages and HELOCs)

    When a first mortgage forecloses on a property, any junior liens attached to the property are also wiped out and the loan(s) become unsecured debts as they no longer have security interest in the said property. In some cases, the “sold out junior loan” may seek restitution or sue the borrower personally on the promissory note. However, as with senior lienholders, California laws provide protections for borrowers which prohibit future judgments on purchase-money loans.

    Deficiency Laws After Short Sale and Deed in Lieu

    Short Sale: A short sale occurs when a homeowner sells their property for less than the outstanding balance of all liens attached to the property. The laws governing short sales in California (CCP § 580e) prohibit lenders from seeking the deficiency after the short sale on a residential 1-4 unit property, including junior lienholders who agree to the sale.

    (CCP § 580e) No deficiency shall be owed or collected, and no deficiency judgment shall be requested or rendered for any deficiency upon a note secured solely by a deed of trust or mortgage for a dwelling of not more than four units, in any case in which the trustor or mortgagor sells the dwelling for a sale price less than the remaining amount of the indebtedness outstanding at the time of sale, in accordance with the written consent of the holder of the deed of trust or mortgage, provided that both of the following have occurred:

    (A) Title has been voluntarily transferred to a buyer by grant deed or by other document of conveyance that has been recorded in the county where all or part of the real property is located.

    (B) The proceeds of the sale have been tendered to the mortgagee, beneficiary, or the agent of the mortgagee or beneficiary, in accordance with the parties’ agreement.

    - See more at: http://www.loansafe.org/deficiency-laws-foreclosure-short-sale-california
  8. Moe Bedard

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

    As they saying goes, trust, but ALWAYS VERIFY. Every state is different on how deficiencies work and their statute of limitations. Idaho is 5 years on statute of limitations. Once this expires, they cannot collect from you.

    If I were you, I would consider suing your agent/broker in civil or small claims court for misrepresentation.
  9. amelialynn

    amelialynn LoanSafe Member

    Hi Moe:

    I live in Michigan. I understand that MI is a recourse state and that I can be pursued for the deficiency after the short sale or foreclosure. My concern is that I feel as though I am being backed into a corner to do a traditional ss so the banks have more ways of manipulating me into paying closing costs, having to agree to paying the deficiency over a period of time, etc. I've expressed this with my realtor, but she continues to say that there is a chance that she can get the deficiency waived with both banks. I don't understand then why both banks won't agree to the HAFA ss if they don't have intentions of forcing me to pay out of pocket or forfeit the sale. And I think this has everything to do with the banks knowing that I have some money in my savings now. It's enough for me to bring both loans current, but then I will be left with nothing in savings. Though, I stopped paying my loans in May of 2013 and didn't come into that money until Jan of 2014. Last thing I want to do is use it to save a house I don't want. That's been my fear with a traditional ss, the banks would find a way to get that money either at closing or later on down the road.
  10. Moe Bedard

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

    Hello Amelianlynn,

    Yes, if they know you have assets and or money, they will often do just like they are doing now.

    It seems that if you short sale or foreclose, that you will be treated the same way and the only people benefiting here seem to be everyone but you. If the second mortgage doesn't settle with you or receives no funds at foreclosure, they can come after your personally.
  11. amelialynn

    amelialynn LoanSafe Member

    Moe:

    I appreciate your responses and candor. If the HAFA falls through I am prepared to file bankruptcy and walk away from the house and this debacle of a mortgage. It's the only way I feel truly safe against the pitfalls of traditional short sales and deficiencies. Especially after reading some many posts on this thread from so many who thought they were safe with a ss, only to find out that the terror continues.I'm hanging in there and hoping for the HAFA to come through, but have made peace with the fact that it might not. It's been a long 16 months of waiting.
    Moe Bedard likes this.
  12. Moe Bedard

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

    My pleasure Amelialynn. I would probably do the same as you have planned. You can only take so much and in the end, you need to do what is best for you.

    I wish you the best and please let us know how everything works out for you in the end.

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