Short Sale Deficiency

[God'sSurprise]

Hi! Newbie here. I found the forum while looking for some information last night & I'm thinking someone here might have some answers.

Quick summary, we have two houses for sale, our residence & another rental home. When our realtor first mentioned 'short sale' it was explaned to us that once the bank accepted the offer, that was it. We had to pay no brokerage fees, etc. it was all included with the bank. Now we are at the negotiation point of them (loss mitagation) telling us that the PMI wants us to sign a promisory note for $18K.

My question is two-fold.
1. Do we have any way to negotite this amount?
2. If that is the case, instead of paying $18k on a house for 15 years (the payback was $100/per mth for 179 mths), why can't we just do a forclosure? A few people (manly the loss mitagation dept) says that we could be held liable for the difference in the forclosure amount.

Also, so far we have no offers on the second house, so it might be a forclosure anyway. We've dropped the price, but only one real good offer but he can't get financing.

Any information/suggestions would be greatly appreciated. Thanks!

[HHM]

Basically, they want to keep the deficiency a collectible debt. And it is true, that the same would likely happen in a foreclosure. Thus, you are no better off doing this short sale and should walk away.

1. You can try, but frankly, the ONLY benefit to a short sale for the seller is that the deficiency is forgiven...if they don't agree to forgive the deficiency, there is no point in doing the Short sale.

I would press the issue and walk away if they don't agree to forgive the debt. They are playing on your fear of foreclosure, call their bluff.

[dadkrs]

I too had a rental and was negotiating a short sale. Had a buyer, went to contract had my attorney submit the paperwork to get the 2 banks involved to agree. The primary( Wells Fargo ) agreed with the sale price, but the second( Chase) dragged their feet for 4 months, finally my buyers backed out, the second never agreed to it, so now that I filed it will be foreclosed on.

By the way the second wouldn't agree even after my attorney told them I was going to have to file Chap 7 if they didn't. They would have gotten 3K instead of 10K

So does that mean I will be sued for the deficiency.???

[shipshegal]

Copied From ForeclosureFish.com 9-7-07

I am too concerned about a deficiency judgment, as we chose to let our home go into foreclosure because of subprime payments that are way out of control... and decided chapter 13 wouldn't work in our situation. Anyway, I thought this information was interesting..
Here is what I found:
There are numerous websites showing the legal and theoretical possibilities of being sued after foreclosure. Many so-called "foreclosure experts" threaten homeowners with the possibility of being sued after foreclosure, and having their wages garnished, cars repossessed, or given enormous tax bills from the IRS. Since so many state foreclosure laws do allow deficiency judgments, there is always the danger of being sued after foreclosure. However, most of the foreclosure advice being given to homeowners is wildly inaccurate. In almost every single case, what usually "actually" happens is...
Nothing.

The bank, after the foreclosure, would have to sue the former foreclosure victims for the deficiency judgment if one even exists. This means the bank would have to hire lawyers, pay attorney fees and court costs, and would simply have a judgment against them. There is no expectation that they would ever be able to collect on that judgment, and banks are aware that homeowners go into foreclosure because they run out of money. So, if they know homeowners have experienced a financial hardship and do not have any money, and the mortgage company has already lost money on the loan due to the foreclosure, there is little reason for them to sue again. They just move on with attempting to sell the property on the open market and recoup some of their losses.

When a homeowner sells the property before the foreclosure and sells it at a lower amount than what is owed on the loan, this is called a short sale, and is one of the most common ways that homeowners can stop foreclosure on their homes. In this case, the homeowners would get a 1099 at the end of the year, since the bank is forgiving the difference in the loan amount. Forgiven debt is counted as income. But this is only a possibility when a homeowner has worked out a short sale with the bank and a buyer, and the home has actually transferred ownership through the short sale.

When the house is sold at sheriff sale for a loss, this is not forgiven debt. It is merely a sale of the house, and homeowners do not get a 1099 if they do not receive any profit from the sheriff sale and if no debt is forgiven. The house is just taken from them to pay the bank and the bank gets the property back because that was pledged as collateral on the original loan. The legal mechanism of foreclosure allows for the sale of the property at a public auction, but has nothing to do with forgiving any portion of the actual debt represented by the foreclosure judgment.

So that is what actually happens in the vast, vast majority of foreclosure situations. Banks rarely pursue deficiency judgments unless they know the homeowners have a lot of cash and other assets that would make it worth suing them. This is not the case in most foreclosures, though. While literally hundreds of online resources and charlatans will threaten homeowners with the possibility of a deficiency judgment and all of its ill effects after foreclosure, the banks themselves are wise enough to recognize that suing their former clients is not in their best interests in all but the most extreme cases. In fact, most lenders would gladly give former foreclosure victims another loan, if they met the qualifications; so there is no reason to turn away future business due to an unfortunate financial hardship that led to the foreclosure.

[dadkrs]

A primary residence is ok, I believe. I am trying to find the wording, but if it is your primary residence I think you are forgiven, It is non primary that is the problem.

The above is what I have read other places. I will research.

[dadkrs]

Try this for a better explaination:

http://www.nolo.com/article.cfm/ObjectID/A80A6DCE-1F1E-49E3-8AB35679DB63ADF9/catID/7E846209-6969-42D1-8B1617C517D8E62E/213/317/ART/

[God'sSurprise]

Well, we told them we were not going to sign a $18K note & the loss mitigation person said that they would just pull the offer & it would go into foreclosure & we would be held liable for the difference. She made it sound like this note for $18K is the greatest thing since sliced bread. It's only $100 per month for the next 179 months!!! But our point of view is that we have invested time & money into the house & with the short sale we are walking away with nothing. And now they want us to keep paying on the house for the next 15 years. I have called a bankruptcy lawyer today. We'll see how it goes from here.

[fltoo]

I would, also, call their bluff and not agree to the $18,000.

[Tbornetun]

We have had a lot of clients pushed into short sales recently. If they are filing bankruptcy anyway and planning on leaving their home one way or another, their is no benefit to doing the short sale from a credit stand point. The only one that benefits is the realtor, and the client is force to move out of their home faster than if they just allowed it to foreclose. In Minnesota, there is a 6 month redemption period after the sheriff's sale. It is normally 10-12 months from the time they make their last mortgage payment before they need to move. That is 10-12 months rent/mortgage free living and the debt will be discharged in their bankruptcy.

[spell]

There are numerous websites showing the legal and theoretical possibilities of being sued after foreclosure.

This means the bank would have to hire lawyers, pay attorney fees and court costs, and would simply have a judgment against them.

This may be different in some states. They hired a lawyer for a half dozen pleadings, notices and court appearances already. The final appearance is typically confirmation of the sale. At that appearance, they'll also formally evict anyone still in the property. While there, they'll usually ask for the deficiency judgment as well.

I'm in IL. Our state allows deficiency judgments. In Cook Co, unless there's something unusually fishy, the judges say "no." In most of the collar counties, if you stand up in court on that day and ask they judge, he'll say "no." But if you don't show up, they'll grant the bank's deficiency.
As you can see, there are a wide range of results even within one state.

The benefit of accepting a short sale, even with deficiency is that it's the devil you know, instead of the devil you don't know.
The foreclosure deficiency will very likely be much larger than this $18k.
But at the same time, your finances probably weren't all that peachy if you're getting foreclosed on. Sometimes $18k is the steel beam that breaks the camel's back.