Real Estate Investor · Member since 2010 · 15 posts · 0 votes
I received the following message from a Wells Fargo Negotiator regarding a short sale I am working on.
I received a reply from the MI company on this short sale request. They are requiring the seller sign a promissory note to approve the short sale. The terms would be as follows:
Amount of note - $75000
$416.66 OVER 180 MONTHS, 0% INTEREST
WE WILL NEED THE BORROWER(S) FUTURE MAILING
AND PHONE NUMBER(S) TO SET UP THE PROMISSORY NOTE IF THEY CHOOSE TO ACCEPT.
Please review with the seller and let me know. Thanks!
I let him know that she couldn't pay that much per month & that I would speak to her and see if she could pay around $200. Negotiator reply:
The MI company does not negotiate their requirements. If the borrower is unable or unwilling to sign the required promissory note, we will not be able to move forward with a short sale. Please advise
Does anyone have experience with negotiating these away. Can the home owner after signing the note then negotiate terms later on down the line.
I have had negotiators tell me that my Homeowners should sign a promissory note in order for them to grant a short sale.
It's up to the homeowner is they want to remain in debt all their lives or if they want to fight.
If the house is sold, the the note becomes an unsecured debt. Hence, can easily be wiped out in a Chapter 7 as stated by Joel.
I have seen instances where a homeowner has got a letter from a BK attorney stating that they will qualify for a Chapter 13 and a 7. Then the bank came to the negotiating table.
Homeowners can win if they decide to fight but many decide to just let the banks have their way NOT knowing that they will get a deficiency judgement esp in states that allow it. At the end, they either have to short sale the judgement or file a chapter 7.
If the bank bank is willing to accept a short sale, it means they will make more than if they foreclose.
I always say that's not a problem, we will just file a chapter 7 and wipe the debt out. The last time I tried that, this bank came back and offered my client $5,000 move out incentive...It's all playing hard ball.....The homeowner will lose the home in any case but they don't go down without the bank bleeding tooo and they making something....it's all negotiations..... LOL
No legal advice here. The negotiator is full of crap.Promissory notes can be negotiated all the time.
Sometimes it is better for the owner to let the property foreclose instead.Even if they sign a promissory note they can file a chapter 7 after the short sale and wipe out the amount owed.
It's impossible to answer your question without knowing the sellers intentions.Are they trying to preserve credit?? Do they own other assets with equity that would make BK ch 7 not a possibility??
Have they tried a loan mod?? Is this a primary residence or is it an investor owned property??
What state are they in?? How many loans are tied to the property??Recourse with the loans will depend on loan type and state laws.
What might be best for the seller might not be best for the buyer.
If they are in a judicial state the foreclosure process can be very lengthy for the lender.The possibility of a BK filing could tie the non-performing asset up for years.
An not fully educated investor and seller on a short sale is ripe pickens for the lender/servicer who owns the loan.
Also forgot to mention if this is a primary residence bought in a certain period of time and it forecloses the bank has to issue on the senior loan a 1099 instead of a pursuing deficiency.
With a 1099 they will pay not tax on the phantom gain for personal residence if certain conditions are met.They can also file an insolvency form to wipe out any gain if they qualify.
Saddling a past homeowner with a promissory note will meet with limited success.When the owner does a deal they want to move on and put it past them and not be reminded of it for years on end into the future.
Credit score wise short sale and foreclosure are pretty much the same in point drop.A difference with a short sale is being able to get a loan in a few years versus a foreclosure where some lenders will penalize the seller and make them wait 5 to 7 years before getting a loan again.
So all depends on the short sale and the seller involved with how to approach it.
Also forgot to mention if this is a primary residence bought in a certain period of time and it forecloses the bank has to issue on the senior loan a 1099 instead of a pursuing deficiency.
With a 1099 they will pay not tax on the phantom gain for personal residence if certain conditions are met.They can also file an insolvency form to wipe out any gain if they qualify.
Saddling a past homeowner with a promissory note will meet with limited success.When the owner does a deal they want to move on and put it past them and not be reminded of it for years on end into the future.
Credit score wise short sale and foreclosure are pretty much the same in point drop.A difference with a short sale is being able to get a loan in a few years versus a foreclosure where some lenders will penalize the seller and make them wait 5 to 7 years before getting a loan again.
So all depends on the short sale and the seller involved with how to approach it.
Joel,
Thanks for you post and great advice.
I was hoping you might be kind enough to let me run something past you for some advice? Maybe you can tell me what type of lawyer I need to consult?
etc?
I am not sure if I need a PA or NC lawyer or what Bank Of America can do to us?
I am in the process of a short sale on a Investment property Townhouse I bought pre construction in 2007 that I can no longer rent and the value has dropped about 60% in the last 4 years.
I was foced to stop paying the mortgage to Bank of America about 8 months ago, with no income and it wrecked my 815 credit score down to 630 - last time I checked it.
I paid $160K for it and borrowed $137K from Bank of America which Is about the amount I still owe on it after 4 years of mortgage payments of $1,000 + per month.
We have an offer for $67K on it for a short sale (which is about the current value I am told) but B of A wants my wife and I to sign a promissory note for the somewhere around the difference between the offer and what is owed which is still $137K or they will foreclose on it?
We own our primary residence home worth $200K - $260K with a second Heloc on it for $23K currently owed on a recently closed Heloc, we had for years from Wells Fargo and live in PA and own combined income is probally a bit under $100K a year (Gross) and the townhouse is in Charlotte NC?
I don't have any money to pay a promissory note and I not sure what the laws are ? Any advice, or do you know who would be best to consult?
Added Note: We just completed a short sale on a $141K loan on a SFR also in Charlotte NC thru Chase and the short sale buyer paid $80K and Chase "released" the amount owed and I will get a 1099 on it maybe in Dec 2012 and will have to pay Uncle Sam about $11,000 in "Capital Gains" Tax if it is still at 15% for 2012?
Thank you and I appreciate any expert advice you can or will provide.
i don't know your sitaution that well..but didn't i see you post in another area that your home was Free and clear? maybe i'm thinking of someone else, but it's a lot tougher to get bank forgiveness on investment properties, especially if you have substantial equity
Were your loans funded in a corporation or your own name??Odds are these investment loans were in your own name.
Are you in a judicial or non judicial state for foreclosure??
Don't feel bad about losing these properties.I know a ton of people that over paid in 2006-2007 because they counted on rents to keep rising and sale prices to keep appreciating with buyers that could get easy lending.
So now they are in the same situation as you or in bankruptcy.
If you do own your house free and clear or have a bunch of equity I would pull it out and invest now to grow it.I would also look at transferring title out of your name if it's the same tied to the other loans.
Tax professionals have an insolvency form you can use at the time of the phantom tax gain on a short sale.
Protect the equity that you have and start over and buy right.No legal advice.
I'm sure BofA wants the promissory note because they see you have good income and other assets. I'm surprised Chase let you off the hook. Did the same listing agent work both deals for you?
With the foreclosure, they will go after you on a deficiency judgment. Wouldn't you do the same? Imagine it were your own funds that you'd lent, and it was your life savings. Would you try to recover it though the courts? However, they know you could possibly file BK and gum up the works for a very long time. So it's a cat-and-mouse, though their judgment is that you are not a BK candidate, probably correct given income and home equity. You can definitely negotiate the promissory note down, this is what your expert counsel should be helping you with, get a good RE attorney with short sale experience, I'd think.
I would hope that some of the SS experts would chime in, there are a few on BP.
The difference with them getting a judgement is it will junk up your credit and the judgment will keep accruing fees and growing in balance.
Yes you can negotiate the promissory note down. Your credit isn't that great right now but you can get it back up.If your house is paid for then take out that dead equity and invest in a down market to pull yourself out of the hole.
I have had negotiators tell me that my Homeowners should sign a promissory note in order for them to grant a short sale.
It's up to the homeowner is they want to remain in debt all their lives or if they want to fight.
If the house is sold, the the note becomes an unsecured debt. Hence, can easily be wiped out in a Chapter 7 as stated by Joel.
I have seen instances where a homeowner has got a letter from a BK attorney stating that they will qualify for a Chapter 13 and a 7. Then the bank came to the negotiating table.
Homeowners can win if they decide to fight but many decide to just let the banks have their way NOT knowing that they will get a deficiency judgement esp in states that allow it. At the end, they either have to short sale the judgement or file a chapter 7.
If the bank bank is willing to accept a short sale, it means they will make more than if they foreclose.
I always say that's not a problem, we will just file a chapter 7 and wipe the debt out. The last time I tried that, this bank came back and offered my client $5,000 move out incentive...It's all playing hard ball.....The homeowner will lose the home in any case but they don't go down without the bank bleeding tooo and they making something....it's all negotiations..... LOL
