Short Sale Question

[Jack Jones]

Just got approval for short sale. I owe $200K on beach property and have an offer for $90K. In the short sale agreement it states that the lender or its investors may pursue a deficiency judgement for the difference in the payment received and the total balance due unless agreed otherwise. In the approval, which was done by a short sale specialist, I don't see any clause saying they will not seek deficiencys. If this is the case then what is the difference between this and a foreclosure and an auction. I thought the short sale would offer me some benefits.

[Scott Hubbard]

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.