Hello CTC,
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?
Matt
Separated this post into its own thread in Short Sales forum.
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.
Matt,
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.
Please talk to an attorney FIRST!
Do not attempt to talk to any asset manager unless the attorney tells you to talk to them.
And, as the property owner, do not offer any money to the asset manager. PERIOD!
Hope this helped.
Crosswind,
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.
Eric
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!.
Okay,
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.
Matt:
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.
Moe
Can we please stay on track to helping Matt with his situation? Thanks.
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."
Please tell us which bank do you work for?
That was awesome Scott! :D
Moe
Matt, I am in your same situation, and I want to share with you what I have found out.
I am a homeowner in CA, and recently received a short sale approval on my residence, which has a non-recourse loan (1st only, never refid, property always occupied by owner). My approval letter also included the clause that allows BofA to pursue the deficiency.
Like you, I wanted to know what this meant. My realtor - of course - told me not to worry about it, that they couldn't pursue non-recourse loans. But this is NOT TRUE. The confusion arises from foreclosures. In a foreclosure, the lender cannot pursue a deficiency because California enforces the One Action Rule that says they can take your property or sue you but not both. And almost without exception, in residential cases, the lender takes the property back.
Short sales are NOT the same thing as foreclosures. You and I have no protection. The lender is entitled to pursue a deficiency, which they will treat like a collections process. They will either try to get you to pay (in full, though with interest free loan typically), or, they will send you over to a private debt collection company.
So the only thing we can do is to get the lender to drop this language from their short sale approval letter. This is what I am trying to do through the negotiator. I am going further by asking them to explicitly say they will not pursue me. Anything less than that keeps the liability in place.
Like all interactions with BofA it is a time-consuming process that severly tests my patience. It takes days to weeks to get a response back, and no one seems to have the leverage to make the negotiator call you back. My lawyers told me if I am persistent then I have a chance to get them to change the text, but the odds are not on my side.
Of course, had I known this before I entered the short sale process I would have thought twice and almost certainly never proceeded. But now that I am in the process I am going to give it all my effort. I just hope I don't run out of time.
In closing, I would recommend that you consult your own attorney. I myself hired two in order to avoid bias or problems with advice. I further consulted with two more. They all told me not to agree to the short sale without deficiency protection. So I am following their advice and praying that this long journey will come to an end soon.
Please share any information that you gather should you decide to pursue the same route as me. Thank you.
Sometimes there is confusion with regard to pursuit of deficiency. There are certainly legitimate concerns about short sale vs. foreclosure and the rights to collect deficiency. If you ask an attorney in California or in my state Arizona, they will say when doing a short sale your not protected under the foreclosure statutes. So, in the event you do a short sale, the loss the bank has incurred, it may have the right to pursue collections. Attorneys will even take it a step further and say if the foreclosure laws only protect homeowners after foreclosure, then the lender could file a judgment against you as well. The fact remains, they will not get a deficiency judgment after a short sale automatically.
Attorneys job is to protect your interests and they have no problem charging an hourly rate to block every conceivable path the lender might take.
Jeff obviously is an attorney or has enough money to pay for ten of them. Most of us do not, so take from this thread two points.
1. Before doing a short sale get a good team behind you to make sure your interests are protected. This should include an attorney, CPA, a good REALTOR, and someone who can negotiate with the lender.
2. Make sure in the sales contract the there is an addendum that states the lender must agree in writing to waive its rights to file a deficiency judgment against seller and consider the deficiency balance as settled now and forever.
Not only should the above be written into the sales agreement as a contigency to the sale, it should also be written into the approval letter which will be entered into the closing record.
Look the reality is lenders rarely pursue anyone after a short sale in an anti-deficiency state since they will have to sue you in a seperate case. This costs thousands of dollars and lenders have no interest in gambling that a judge will rule in favor of a big bank over a a family of four who lost their home and probably nest egg.
But, why leave it up to chance, get your ducks in a row.
Scott, thank you for following up on my comments. I am not an attorney, but have had to be very thorough in my education about this short sale process.
A question for you: now that I already have a short sale approval letter, what is the most effective way to get B of A to waive the deficiency and put in writing that I am free and clear forever?
My realtor neglected to ask for the deficiency waiver in advance. Now I have a short sale approval letter that needs to get changed. I am struggling trying to get B of A to respond to me. There is conflicting information on whether the negotiator is empowered to make this change. I just need to find the right person to effect this change.
Your advice would be appreciated.
If its in there and you live in a deficiency state they can come after you. Its your job to negotiate that out.
Brian Haskins