Deficiency Judgements

Yes! All Recourse notes/HELOC's etc. Ariz. just passed a new law on this subject and is going after any and all $$$$. Every deficiency judgement is reported to the IRS and State. Bottom line is; Cities and States are hurting for money. You may not have to pay Fed. income taxes because of the bail out (forgiveness)! But that law has nothing to do with the States and Cities who are trying to stay solvent! FYI! Lenders don't pursue deficiency judgements they just report them to the IRS and State Tax boards as Income.

Edited: 06/26/2010 at 09:18AM by Matt Mathews

Justin S.

Rehabber · Chandler, Arizona

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Icon_minipost Aug 10 '09, 04:49 AM

Matt-

I do not understand your response. You state Yes you have heard of deficiencies being pursued but then your last sentance says lenders don't pursue deficieny. Do you have any specific examples of banks actually seeking a deficiency? Isn't reporting income different than pursueing a deficiency?

Minna-
I have not heard of any lenders doing it yet. Besides countrywide/BOA threatening to do it, I still have not heard of them actually doing it.

Edited: 06/26/2010 at 09:18AM

Justin S., Wheelhouse Properties
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Steven Moore

Real Estate Attorney · Tampa, Florida

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Icon_minipost Aug 12 '09, 09:59 AM

Technically, there is no deficiency judgment after a short sale. If there is, the person handling the short sale is incompetent. There is one in a foreclosure suit. In Florida (Tampa Bay area) banks are seeking deficiency judgments. Although they were rare in the past, they are starting to pursue them. The good news is that there are so many foreclosures it may take them 2 years to get to it.

Edited: 06/26/2010 at 09:20AM

Rich Weese

Real Estate Investor · sioux falls, South Dakota

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Icon_minipost Aug 12 '09, 11:25 AM

Yes. I have seen local banks in TX go after foreclosed homeowners after foreclosure sales. Previuos posters were correct in short sales not being prospects for deficiency previously. However, many are now threatening to begin the process on short sales also. Rich In Dallas.

Edited: 06/26/2010 at 09:20AM

James Ward

Real Estate Investor · Ocala, Florida

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Icon_minipost Aug 13 '09, 12:27 AM

I also have seen a local bank go after the deficiency. But it was an investor that had several properties that were all shorted. I have not heard the final outcome. But I was made aware of the situation.

I also have been getting more and more lenders stating that they want to go after the deficiency.

James

Edited: 06/26/2010 at 09:20AM

Felix Liusky

Real Estate Investor · Los Angeles, California

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Icon_minipost Aug 17 '09, 05:59 PM

Not ever a deficiency if you put this in your purchase and sale contract for the "to be foreclosed home owner" before you send in the short-sale package:

Subject to: mortgagee's FULL SATISFACTION and lien releases with waiver of deficiency collection.

Edited: 06/26/2010 at 09:24AM

Tony Lessan

Real Estate Investor · Los Angeles, California

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Icon_minipost Dec 29 '09, 09:14 AM

Hi Felix, is that the wording you use on the P&S contracts to waive the deficiency collection?

Edited: 06/26/2010 at 11:01AM

James Ward

Real Estate Investor · Ocala, Florida

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Icon_minipost Dec 29 '09, 06:35 PM

Tony,

You can word it pretty much any way you want. But the most important thing is, how is it worded in the Acceptance Letter. Make sure the Acceptance Letter states everything that you and the property owner are expecting.

Edited: 06/26/2010 at 11:01AM

Minna Reid

Real Estate Consultant · Tolland, Connecticut

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Icon_minipost Dec 29 '09, 10:25 PM

The lender is not a party to the contract - so it doesnt matter what you put in there. The Approval letter would have to state those things in order for the homeowner to be completely free of any later collection activities.

Edited: 06/26/2010 at 11:01AM

Scott Hubbard

Rehabber · Tucson, Arizona

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Icon_minipost Dec 30 '09, 04:06 AM

Originally posted by Minna Reid

The lender is not a party to the contract - so it doesnt matter what you put in there. The Approval letter would have to state those things in order for the homeowner to be completely free of any later collection activities.

In Minnesota, which is a deficiency state, BOA did file a judgment against the homeowner post sale. I have yet to have one filed in an anti-deficiency state. Lenders are indeed allowing the option to pursue a deficieincy more and more.

If your state allows for a deficiency, then you better get a waiver or have the seller sign an exception.

Edited: 06/26/2010 at 11:02AM

Minna Reid

Real Estate Consultant · Tolland, Connecticut

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Icon_minipost Dec 30 '09, 07:03 AM

My goal is always to get a settlement in full....but some banks certainly like to leave their options open.

Edited: 06/26/2010 at 11:02AM

Tony Lessan

Real Estate Investor · Los Angeles, California

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Icon_minipost Dec 30 '09, 02:00 PM

Thanks James.

When the lender states that they will waive the deficiency on the acceptance letter, I understand that the lender can still submit the settlement to tax authorities (state & federal). Is the seller liable for the shorted difference as taxable income if its not their primary residence?

Also, does the waiver of deficiency on the acceptance letter apply to the mortgage and promissory note?

Thanks!

Edited: 06/26/2010 at 11:02AM by Tony Lessan

Clifton Jones

Real Estate Investor · Melbourne, Florida

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Icon_minipost Jan 01 '10, 04:00 AM

Originally posted by Tony Lessan

Thanks James.

When the lender states that they will waive the deficiency on the acceptance letter, I understand that the lender can still submit the settlement to tax authorities (state & federal). Is the seller liable for the shorted difference as taxable income if its not their primary residence?

Also, does the waiver of deficiency on the acceptance letter apply to the mortgage and promissory note?

Thanks!

Tony, the answer to both of your questions is YES. Deficiencies on non-primary residences must be reported to taxing authorities by law. I have heard that the homeowners can get out of the tax liabilities, but that is something that a lawyer would have to handle and address with the homeowner. It is not something that we as REI's have the legal authority to address.

As to the whether the waiver addresses the mortgage and/or the note. It addresses both Hope this helps.

Edited: 06/26/2010 at 11:03AM