I have a concern. I recently had a short sale approved in California through B of A and the buyer wants to close asap. I got a letter from B of A stating "BAC Home Loans Servicing, LP and/or its investors may pursue a deficiency judgment for the difference in the payment recieved and the total balance due, unless agreed otherwise or prohibited by law, if the short sale closes on the loan referenced above."
Can they really come after me for the difference? I thought this was the whole purpose of the short sale...to avoid it. I've relocated and find a new career so I don't want to risk taking that hit. Any advise?
Whatever is written in the acceptance letter is what the property owner, buyer, and Lender will go by. The property owner MUST sign the acceptance letter, thusly accepting the terms.
Someone should have told you that this was a possibility. Also, the person that negotiated the short, should have requested for no persuit of a deficiency in the contract/ contract addenda.
Interesting. Do you suggest that I consult an attorney before signing any docs? I was under the assumption that this wouldn't happen in CA but again, this is a huge learnging experience for me. I'm just nervous because it says "May pursue" and the last thing I want is a 1099 and staying in dept for what?
The 1099 is a separate issue. There is a program in effect that eliminate the taxes IF the forgiven debt was used to buy or improve your primary residence. If you took cash out with a HELOC or refinance and used it for something other than improving the property, you're going to be stuck with a tax bill. There is some mechanism to prove you're insolvent, though, and avoid these taxes.
Business Week has a recent article on short sales. They mention how lenders are starting to ask for some cash from the seller or a promissory note. Bank of America is specifically mentioned in the article.
I am an asset manager, and deal with these kinds of things every day. In order to complete the short sale, the bank should have required a lot of financial documentation from you, including the past two years of tax returns and at least three months bank statements for all of your accounts.
The purpose of this clause is that if you are sitting on a large sum of money, they are reserving the right to go after you for the deficiency balance. You should make sure what their intentions are before signing the documents. Someone must be in touch with an asset manager at B of A in order to have gotten this short sale approved.
In most cases, the bank I work for does not go after the deficiency balance, however, we do normally require that the owner/seller contribute by signing a promisory note to help absorb some of the loss. This is usually in the amount of somewhere between 5k and 10k and spread over 30 years. The thought process is that they are excusing you of 100k in debt for exchange of only 10k of debt (much more manageable).
Great information guys, thank you so much. I've been stressed about this whole thing for a while. Everything is done other than signing the docs at this point so will take your advice and talk to a lawyer and for sure the asset manager at B of A. I see what you're saying about the 5-10K because you got my situation correct. I'm about $105K difference right now and sure wouldn't want that on my plate.
Asset manager's aren't bad people. We try to help people to not lose their properties or to help them sell their properties. We do not charge fees to the customer for our services, and having an attorney that you pay does not change a single thing that we can or will do for a customer. All it does is add legal fees that they have to pay to the attorney.
That being said, I would never recommend against legal advice if thats what makes you feel comfortable.
And don't offer money to your asset manager, they will let you know if you have to make a contribution to get the short sale done.
Not to pick on Matt, because I think this attitude is becoming common, but the "whole point" of the short sale is NOT to allow you to eliminate your debt. It is to allow you to sell and remove that monthly mortgage payment and move on.
Why do you think that the point is to allow you to eliminate your debt? That is bankruptcy, not short sale. You lost money on your investment, you are supposed to "take the hit". You aren't supposed to be able to walk away scott free.
Don't quote me on this but under the first mortgage bailout package (Bush). Non Recourse Note deficiency's on acceptance of short sales would be forgiven. That may have expired??? The notification letter is standard procedure under real estate law even if forgiven. On the other hand if the short sale also has a HELOC 2nd-That note is RECOURSE and not forgiven even if the note holder accepted a short payoff!.
Normally I do not get into a word game here on this site. But since I was called out, I will retort.
1) I have never made any comments about asset managers. So to assert that I have is completely false!
2) As an "asset manager" it is not your job to help a home owner sale the property in question. This also is false. Your are hired to represent the Lender that pays you.
3) You can not charge any fees for services, since you are paid by the Lender that hired you. Saying you do not charge fess also is misleading.
4) Stating that the hiring of an attorney will "not change anything". This statement is absurd. I am sure that attorneys would love to here you say they will not change anything.
5) Your continued statements of making property owners pay a contribution is also misleading. I have completed HUNDREDS of short sales. Yes I said HUNDREDS. And not one(1) of the property owners have ever paid a contribution.
And now I will end this converation. I must appologize to all members here on BP. I do not condone these types of replies. But, if called out, I will retort!
Thanks Eric. I don't take it personal at all. I'm really in that position where I need all the advice I can get and it's great to learn as I go. I am in a legitimate position here and lost my job and now actually relocating to find work. I really just want to make sure that I'm doing things right and not getting punished too badly. I appreciate everyone's help.
I actually do help people to sell their properties, but thank you for telling me what my job entails. I get them in touch with real estate agents, and allow them to complete a short sale. Without allowing them to do a short sale, they will NEVER sell the property because they owe more than what it is worth. So if you ask me, that is quite a lot of help.
I will also be happy to speak with any attorney and tell them directly that they cannot change anything that I can or will do for a customer. I genuinely do the best I can for everyone, and am tied down by the guidelines of the investors who purchased our loans. So a lawyer does nothing but hamper communication with the customer and make the process take longer. No matter what a lawyer says, if my investors will not allow me to bring a loan down below a certain interest rate, I cannot do it.
As far as never having a customer pay a contribution, good for you, but my bank does not allow that in most situations. If we are going to forgive a customer of 100k in debt, they can and should contribute something towards their obligation.
And I'd love to know how it is misleading to say that I don't charge fees when in fact, I don't? I'm being paid by the bank, not by the customer. Regardless of whether you want to believe that I charge a fee or not, a customer is only paying additional monies to use a lawyer and it isn't necessary. Most people don't realize that it is something that they can do on their own, and people like to perpetuate the fear that they must have a lawyer or they will get screwed. Totally false.
As Jon had mentioned about HELOCs or Refi's which in California makes it a "Recourse" loan, then yes BoA can come after you with a deficiency judgment for the difference.
BUT If this was just a Purchase Money loan (no refi or HELOC) then they cannot come after you for a deficiency judgment.
Scott Hubbard on this board made a good point about this -- that basically BoA is generically putting this on their acceptance letters to let the borrow know that they "may pursue" and "unless agreed otherwise or prohibited by law". In other words, if they can pursue a judgment they will pursue it.
At least they didn't hit you with a promissory note to close this deal.
Sorry, for some reason this sticks in my craw. What do you mean "legitimate position"? I am not questioning your story, I am wondering why you think losing your job entitles you to not repay your debt. If you want to "do things right", you have 2 choices. Repay the debt or declare bankruptcy. You are complaining that they might make you pay back a legitimate debt.
I don't understand the "help" you are looking for.
Read your mortgage agreement. You owe the money. You are looking for a way to stick others with your debt. If you were lucky enough to get a short sale approved, you should thank your lender and gladly accept the 1099. They forgave your debt when they didn't have to and you'll only pay a fraction in taxes of what you should pay.
James,
"As far as never having a customer pay a contribution, good for you, but my bank does not allow that in most situations. If we are going to forgive a customer of 100k in debt, they can and should contribute something towards their obligation."
Let's educate Matt and others about short sales and why lenders ask for contributions.
In anti-deficiency states, lenders do not have as much leverage. Therefore, their terms are sometimes boilerplate and can scare most lamens. In states where laws offer little protection from deficiency judgments, these boilerplate terms can have major consequences. So, as many here have already stated seek counsel including tax advice.
Many times, in states where there are anti-deficiency laws, lenders may require an unsecured promissory note since they cannot file a judgment. Since most of these lenders are using TARP, I just tell them you already owe them money and it will be an accounting nightmare to keep track of the debit and credits.
Truthfully, loss mitigators, asset managers, negotiators, have one function and that is to protect RE assets and to charge service fees to their investors. These are not bad people, they just are trying to pick up the pieces of a shattered industry. So my second piece of advice is to not take any advice from them and certainly do not use the agents they recommend.
A good negotiator helps two diametrically opposed parties compromise. So, my last piece of advice for people who are contemplating a short sale, make sure you find out if the agent, negotiator, investor will use verbiage that helps protect your interests.
For you bank employees, a little piece of advice. A loan modification is a future short sale, but a short sale is a future performing loan. Just say NO to REO's!