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Q: The phone call was from an acquaintance, who had her friend on the line to discuss what to do about a proposed short sale which was stalled. The REALTOR seemed unsure what to do and both women felt he was looking out for the bank’s interest. Her problem: the lender wanted her to sign a promissory note for the deficiency—$25,000 on a $120, 000 loan in order for them to approve the short sale and let her go to closing. They agreed, after some haggling, to accept $6,000. She was frustrated because she felt they should just approve the short sale; further, if they didn’t she was considering just letting them foreclose. She had already moved out of the house and quite frankly, just wanted this to be over with. The question: What is a short sale suppose to do anyway? I thought it was to wipe out what I owed and the bank wrote that off as a loss.
A: There is NOT a simple answer to the issues raised in the above phone call. I will address what a short sale is (and isn’t) and then address a couple of other issues from the query above. First, short sale means that the lender permits a defaulted borrower (under certain circumstances) to close on the sale of the mortgaged property for less than the full amount allowed. There is a broad misconception that a short sale will be without conditions. Nothing could be further from the truth. The lender has the right, under the terms of the mortgage note (or the deed of trust), to pursue the consumer for the deficiency when less than the full amount due is received from a new buyer. The lender has several options to cover the deficiency: a. submit a claim to the insurer (when applicable, subject to certain restrictions) go for a deficiency judgment against the borrower (can be used to get a wage assignment) ask the borrower to sign an unsecured note for all or a portion of the shortage some other alternative I have not heard of yet
If the borrower does not agree to the ‘conditions’ for the approval then the lender has the sole right to reject the proposed offer and move forward with foreclosure.
Foreclosure is an option the borrower should try to avoid in almost all situations. Pretty much the only time foreclosure has limited power to hurt you is: if you are much older (say 70) never plan to buy a house again, you have NO ASSETS (no savings, no retirement, nothing) and you are judgment proof. Otherwise, you need to work something out. Try to negotiate a lower amount on the promissory note ($6,000 is an excellent compromise). She should take it, run get it signed and notarized and thank the Lord for helping her avoid the full impact of the deficiency. It is important that the document state that the payment of the note “satisfies the indebtedness in full” and is signed by someone of authority at the lender’s shop.
The ‘friend’ from this phone call has several other extenuating circumstances which made the decision to advise her to negotiate and agree to the lowered amount very easy. She is younger (early 50’s), wishes to purchase again, is currently employed, already vacated the house (abandonment, which was discussed on Jan 23-24—here and here) has a significant retirement account and for all those reasons she is not in a strong position to refuse to cooperate with a lender whom she owes $120,00 with an offer of $90,000 on the table. She agreed to repay the full amount, with interest. Circumstances such as her escalating variable rate do not alter the terms of the initial contract. Please understand that I empathize with the situation but must still give you the best answer I can, based on your overall situation. Look to save yourself to fight another day by protecting your financial future with each choice that you make.
(Please e-mail Heather at homeownershipmatters@gmail.com with any questions, comments, or concerns you might have. We appreciate all feedback, comments, and especially your questions. Don't be shy!)
A: There is NOT a simple answer to the issues raised in the above phone call. I will address what a short sale is (and isn’t) and then address a couple of other issues from the query above. First, short sale means that the lender permits a defaulted borrower (under certain circumstances) to close on the sale of the mortgaged property for less than the full amount allowed. There is a broad misconception that a short sale will be without conditions. Nothing could be further from the truth. The lender has the right, under the terms of the mortgage note (or the deed of trust), to pursue the consumer for the deficiency when less than the full amount due is received from a new buyer. The lender has several options to cover the deficiency: a. submit a claim to the insurer (when applicable, subject to certain restrictions) go for a deficiency judgment against the borrower (can be used to get a wage assignment) ask the borrower to sign an unsecured note for all or a portion of the shortage some other alternative I have not heard of yet
If the borrower does not agree to the ‘conditions’ for the approval then the lender has the sole right to reject the proposed offer and move forward with foreclosure.
Foreclosure is an option the borrower should try to avoid in almost all situations. Pretty much the only time foreclosure has limited power to hurt you is: if you are much older (say 70) never plan to buy a house again, you have NO ASSETS (no savings, no retirement, nothing) and you are judgment proof. Otherwise, you need to work something out. Try to negotiate a lower amount on the promissory note ($6,000 is an excellent compromise). She should take it, run get it signed and notarized and thank the Lord for helping her avoid the full impact of the deficiency. It is important that the document state that the payment of the note “satisfies the indebtedness in full” and is signed by someone of authority at the lender’s shop.
The ‘friend’ from this phone call has several other extenuating circumstances which made the decision to advise her to negotiate and agree to the lowered amount very easy. She is younger (early 50’s), wishes to purchase again, is currently employed, already vacated the house (abandonment, which was discussed on Jan 23-24—here and here) has a significant retirement account and for all those reasons she is not in a strong position to refuse to cooperate with a lender whom she owes $120,00 with an offer of $90,000 on the table. She agreed to repay the full amount, with interest. Circumstances such as her escalating variable rate do not alter the terms of the initial contract. Please understand that I empathize with the situation but must still give you the best answer I can, based on your overall situation. Look to save yourself to fight another day by protecting your financial future with each choice that you make.
Copyright © 2009, Home Ownership Matters, LLC. All rights Reserved. "Answer Book in a Foreclosure Climate" by Mildred Wilkins, available in 2009 from www.DovePublishingHouse.com.
(Please e-mail Heather at homeownershipmatters@gmail.com with any questions, comments, or concerns you might have. We appreciate all feedback, comments, and especially your questions. Don't be shy!)
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