BiggerPockets

Before signing, you should question whether or not they intend to pursue you for the deficiency. If they say no, ask to have that added to the contract.

If you do have assets, they may well try to come after them. If they say they intend to pursue a deficiency, try offering them some token amount in the form of a promissory note.

If it goes to foreclosure, they will likely tack between $10K and $15K in additional costs onto the deal. If may or may not bring the same price at the foreclosure sale.

Hi Jack, follow Jon's advice here. Then you might considerr a deed-in-lieu-of-foreclosure. If they won't accept that, then you need to get an attrorney, not saying you don't need on now! The way the winds are blowing right now, I bet they accept the deed, if they do, there is no deficinecy. Also, since this is not your principal residence, you might check on the tax issues for the forgiveness of debt, not sure how that plays out. WIth that much difference at steak, get an attorney. Bill

The problem I see is that I pay $7.5K at closing or can sign the$15K promissory note but the way the agreement reads is that they can still pursue deficiencies. Do you think I should try and get the ShortSale negotiator to try and get the agreement altered that they will not pursue deficiencies?

Jack, missed a post up there. I'd get the $7500 elsewhere and show up with the money. Unless there is an agreement in the short sale allowing a deficiency judgement, accepting less on a payoff and releasing the security is pretty much acceptance, unless otherwise stated. Sounds like they may not accept a DIL, but if they did, while there may be a state that still allows a deficiency, most do not, it's acceptance of the full debt outstanding. Get an attorney! Bill

Only sign the deal if they agree the payoff from the sale plus the $7500 or $15K promissory note is "FULL AND FINAL PAYMENT". I have to agree with JCC, may be time to have a lawyer look over the deal. I don't think you want to fork over the cash, do the short and still have the possibility of a deficiency. That payment IS the deficiency. You just need that in writing. Dang banks anyway!

The lender is NOT party to the sales contract and the short sale agreement. Therefore, I agree with the others you need to get the lender to agree in writing to waive the deficiency rights.


In my opinion:

1. If you have a contingency in the short sale agreement that the lender must waive their rights, then you have a right to cancel the sale. Have the agent or negotiator make sure it is written in the approval letter that they are waiving their rights to file a deficiency judgment and consider the loan paid in full.

2. Since the lender has required you contribute to the loss in the form of cash or a note, your negotiator should have taken this opportunity to introduce the waiver language as part of the concession. I am a negotiator and I have never ever had a seller contribute and not get a waiver. Sounds like you employed a terrible negotiator (and I use this term loosely here) and should have some choice words with your representative.

3. Look very closely at the approval letter as it does not always, in clear and concise verbiage, say that they are waiving the rights. Sometimes it will say paid in full, or settled, which virtually means that cannot pursue something they consider as paid. We would all like to have the approval letters say "we waive our rights to pursue a deficiency judgment", but it is not always this cut and dry.


4. If it does have paid in full, settled, or paid off, then get a second opinion from an attorney. Have the attorney review the language and render an opinion to the potential liabilities to you. Then ask for key language he would like to see in the approval letter.

Do not employ him to act on your behalf as it will likely undue all the work you have done to this point. Try to work through the existing relationships you have to insert the recommended language.

Lastly, most of these approvals are boilerplate and getting language inserted into them can be difficult but not impossible. If you feel your not getting your interests protected from your current representation, then ask for the contact information and speak directly to the lender (loss mitigator) yourself.

Good Luck!

P.S. Do not be quick to employ an attorney without first trying to enhance the deal. If you get an attorney involved, then the lender will get their legal department involved. In my experience this means, since attorneys bill by the hour, will 100% of the time drag the out usually longer than your buyer will want. Losing your buyer could mean the difference between a short sale and a foreclosure. Using the attorney to review the approval letter, at least initially, is recommended. Then, if the lender refuses to cooperate, involve the attorney as you have nothing to lose.

Originally posted by Jack Jones

Thanks everyone, I have sent the realtor a letter asking her to contact the short sale negotiator. Now what do you recommend if I can't get the proper language into the agreement. Do I not do the short sale and let them foreclose? What options if any do I have.

I personally feel doing a short sale and avoiding a foreclosure is better for you in almost every case when a deficiency judgment applies. Why?

1. The foreclosure fees will be tacked onto the deal are real costs to the investor/lender and will be tougher to negotiate a settlement on.

2. In most states, judgments in a foreclosure are almost always automatic where there needs to be a separate court action in a short sale. Often times, this means the lender/investor will have to spend money on legal costs and filing fees to get a judgment against. Quite simply, they may choose not too.

3. Risk vs. Reward. Building on the above, it may not be beneficial for the lender to file suit against you after a short sale. To do so may be cost prohibitive. For instance, if the deficiency is $25K and you agreed to a $15K note, they may not find it in their best interests to pursue a judgment for $10K.

4. Statute of Limitations. In most states, a lender as a specific amount of time to file a deficiency judgment against a seller after the close. In some states it is as little as 90 days.

5. Bankruptcy. If they will not waive their rights, you can file for bankruptcy protection right after the close and this could prevent the lender from filing a judgment against you and discharge the deficiency forever.

In a foreclosure, you can still file BK but it is generally recommended you do so prior to the sale date. This could prevent the lender from filing a judgment against you. You can also do this post-sale as well but the lender will have to release the claim to the judgment.

You could also consider filing BK now. This will undoubtedly stop or delay the current sale, but you might get relief from the deficiency. I do not like filing BK before the sale because your then at the mercy of the judge.

Personally, if I were you, I would threaten your agents that you intend to either file BK to keep the deficiency out of play, or you might just walk away unless they convince the lender to waive its rights.

Let us know how it goes.

What was the final outcome of Jack's short sell ? I am currently in the same boat as you were with the same BofA approval letter. I am in California, which is an anti-deficiency judgement state, but it only applies in foreclosure, not a short sell. California has "ONE ACTION RULE", which states that once the bank forecloses the home they can't go after me for the remaining balance. The same rule won't apply in a short sell. My deadline to close escrow is 6/7/2010. If I can't get BofA to change its language regarding deficiency judgement then I should let the bank to foreclose instead.
Any advice about how to get the negotiator/asset manager to act on this ?
Thanks.

1. My loan was purchase money, never refi and never took any money out. I only have the first. We actually lost 20% down ourselves in this short sell.
2. I have no idea who my investors are (Freddie Mac or Fannie Mae) how do you find out.
3. I am really concern about deficiency judgement. We owe $360k, our offer is $230k so there is a $120k that we are potentially and very likely on the hook should they decide to pursue deficiency judgement. Given that there is a lot of money, I assume that they will pursue deficiency judgement. Also, we are not in the position to offer them to settle for a lesser amount, even at 30%, which amounts to $36,000.
So I guess that unless I can get them to waive deficiency judgement, my only option is not go through with this and let them foreclose at the end. I just have to live with a bad credit for the next 7 years (which I am willing to do at this time. I have no intention to buy anything big in the next 3-5 years). This is not what we signed up for in the first place. We thought that short sell was to avoid ruining your credit score and helping the banking unloading the "toxic asset" at the same time. It seems like they would have more to lose if they chose to foreclose and try to sell the home later.

How is it going now? You have excellant advice here, and it didn't cost a thing! Follow Scott's advice to the T as he has laid it out for you. Again, the deed-in-lieu-of-foreclosure is a tool as well and a bank may not seek a deficiency judgement if the accept the deed. Good luck with it. Bill