Quick Cash and Short Sales

Brandon,

Do your sellers get deficiency judgements? Mine do not. It's in my contract. I instruct my sellers to refuse to sign any promisary notes. If they don't walk free and clear then they have the right to decline the transaction whether it's A-B-C or A-C. If an agents seller signs a promisary note or gets a judgement against them, the agent probably did not protect the seller to well. Most agents don't have a clue about preventing this. No matter what side your on you have to look out for the seller.

James,

How do you prevent a deficiency judgement from happening?

I request total forgiveness up front when asking for the Short Sale approval from all lenders: first, second, etc. It is written and agreed to in the title documents before the sellers sign.

Bob

As an investor we have a close in our contract that says that the lender agrees not to persue the seller for any definciency judgement at any time now or in the future. There is also a law in place where the IRA will release any tax liability from these deficiencies on a primary residence. I suggest finding this tax law and making it available to your sellers as well. As an agent I would suggest an addendum to your contract.

Hi Jim,

This is a friendly comment/question. By telling a seller not to sign a promisory note - could that not expose you for giving legal advice - there are a lot of variables in making that decision; I personally would not make that statement - I would give it to an expert on his finances - attorney, accountant. What do you think Jim.

MaryLouWall813@sbcglobal.net

Bob,

Can you share that clause with us regarding not pursuing the seller etc? I would be interested in reading it. Thank you

MaryLouWall813@sbcglobal.net

That is exactly why I explain to the seller what the possible outcomes maybe from a short sale. I never tell them not to sign a promissary note. It's not my choice. My credit worthiness is not at stake plus what if the promissary note is for $10,000 on a $100,000 deficiency, is it more benficial not to sign and go into foreclosure or sign the note. I think it really depends on each individual scenario.

Sometimes we get caught up in the moment and balk at a promissary note when given the circumstance it may be the best route to take. Just like sometimes a foreclosure is the best route to take.

Telling a seller never to sign a promissary note is like a bank saying no to a short sale even though it will net them more. If we act as bull headed as the banks, it makes us no different. That thought makes me want to vomit.

James:

If your seller writes into the contract what I quoted in my last post it doesn't make a difference what the lender's true intentions are regarding pursuing the judgment. They've accepted the sellers terms of waiving and disclaiming their rights to collect a deficiency judgment so if they decide not to fully waive it - the seller doesn't have to close.

In a court of law, "the written-in addendum" we've added will show that the seller specifically stated that their acceptance hinges on a complete release of any judgments.

My job, as the listing agent and legal assistant to the attorney who has referred me these distressed homeowners is to effectuate a short sale while addressing (in black & white) the lenders intentions on pursuing a deficiency judgment.

Trust me...if the lender doesn't address the situation or if the wording is something like "Any principal balance between the lenders net and the amount owed MAY be forgiven, and the seller could receive a 1099" means that THE LENDER IS RESERVING THEIR RIGHTS TO PURSUE YOUR CLIENT, PERIOD. These banks feel like they've been lied to by people who default, thus THEY LIE BACK EVERY SINGLE SOLITARY DAY. It's really a shame, but that's how our nations banks view this default crisis. I've been a mortgage broker for years and I worked for Eastern Savings Bank back in 1992 when I was 19yrs old taking a year off of college. The banks want their $$$, so protect your sellers by making them address the deficiency judgment in writing!

If you THINK that you've negotiated a full deficiency release for your client because the loss mitigation representative told you so you're 100% misguided. You will at least need an email to prove a full release...preferably a signed letter in writing on the banks letterhead. However, putting it in the contract protects the seller in the best way possible from being sued for a breach of contract from the lender or from the buyer in our humble view. That view has been confirmed by several of the countries best mortgage law attorney's because we have had to advise a few "collectible" clients. Of course, those "collectible" ones are the ones at serious risk of looming judgments.

To respond to the last sentence in the last post about how foreclosures may be a "better route" than a short sale...

***The only time a foreclosure is a better route (to me) is if the client wants to keep living in the house or continue collecting rents as long as humanly possible. The short sale (of course) takes away the ownership, so I understand if they approach us in that manner asking the firm for foreclosure defense. In some cases a good foreclosure defense attorney can stall the case by making the plaintiff PROVE every aspect of the foreclosure complaint (judicial states only) for months. This can allow a seriously distressed family with nowhere to go many extra months, if not years (we have several cases in SWFL that have been defended successfully for over 2 years now with no movement in sight) to save money in order to enter their next phase of life with a fighting chance.

As long as everyone has the best intentions you'll look pretty solid in front of an ethics committee explaining yourself.

I guess you have to know what battles to fight and which ones aren't worth fighting at all.

Mary Lou & James....this is what I posted a few days earlier...it was at the end of a long reply.

Quoting Brandon A. Sciuto, P.A. - CDPE:

My firm, after receiving a short sale offer on one of my 60 or so listings, actually writes in the contract (in the special clauses area on the Florida FAR/BAR "as is" contract...we do this when the seller executes the contract before we send it to the lender):

"By accepting, lender agrees to remove all liens and to waive and/or disclaim any and all legal rights to pursue a money or deficiency judgment against the seller."

Shoot...half the time the lenders don't even comment on the "fine print"...its a real nice way to "repay" them for their inequities...no "pun" intended.

LOL!

Noel:

This is true...

Sometimes you take what you can get because it's a much better option than losing the whole deal.

I've also heard that taking a small promissory is better than having the full deficiency waived in investment property cases.

I heard that this lessens the IRS tax burden by somehow?

I'll dig deeper into that this week.