Deficiency Judgement...Shortsale Pros Please Comment.
Hello all.
When doing a shortsale, I know that investors can ask the seller's lender to do a Defficiency Judgement so that the Seller does not have to pay for the discount (short sale) in the future. Please correct me if that is incorrect.
I was going over the RE laws for my state (California) and Deficiency Judgements are PROHIBITED.
How can we work with the seller, so that he/she does not have to worry about paying in the future. I am sure we have to disclose this to the seller right.
Please help!!!
California is such a hard state to invest in 
.
Gary
As I understand a Deficiency Judgment ...it is when the lender decides to go after the owner for the loan reduction amount. It would more unlikely only happen if they found assets that were not shown when the short sale was granted.
The lender always has the option to file a Deficiency Judgment after the short sale and you had better make sure the owner is aware of this in writing. If the lender grants a short sale it will be because the owner does not have the ability to continue to pay and has no other assets. It would not make sense to go after someone who could not pay the judgment anyway. I would bet it does not happen very often.
Fellow Californians, read (dirty word) the law. Magic word Purchase Money Deed of Trust. No no no Defic Judgements.
In a short sale, it is in the contract that I use. Most of the time we are dealing with Trust Deeds created at time of sale so deficiency is moo er moot.
If any of you have an actual case filed in the last ten years, please tell me. Cause I dun missed it.
California is probably one of the best states in the world to play in the meadow of real estate. Non Judicial foreclosures. what more could you possibly want. Escrow Closings. How many deals do you know that came to nothing due to the intervention of an attorney.
Other then the occasional earthquake or fire, or driveby shooting, Putative Marriages, Stop stop. As a person born right here at the intersection of Wilshire and Santa Monica Blvd, in the gutter. I must affirm this is ca ca heaven when it comes to Real Estate.
Have you ever read the master recording of the back of the standard Deed of Trust. What a Liturgy. The only thing it does not allow you to do is burn the property for the insurance. Where else in the world do they allow you to conduct your own foreclosures under Substitution of Trustee Clause and pay you for it.
With the advent of Title Companies, Escrow Companies, the Attorneys were pretty much eliminated from the routine of real estate practice. Saved a fortune and cleaned up the whole state.
This is really the place for Real Estate Investors. Please guys, do not desert us we need you to traverse the quicksands of Real Estate Investing.
Bowing and Scraping, Lucius
"How can we work with the seller, so that he/she does not have to worry about paying in the future."
Individual laws, customs, and mortgagee policies dictate how deficiency is treated.
A preliminary call to the mortgagee will help you to determine their policy. Perhaps you could ask that they FAX to you their standard 'short sale aproval' letter... and you can go from there.
Naturally, your Proposal to the mortgagee should seek the waiver of any pursuit of deficiency.
If the debt is forgiven, the mortgagee will issue an IRS form 1099 to their former mortgagor in the amount of forgiven debt. Though the IRS view forgivcen debt as income, this amount may or may not (usually is) tax exempt.
SSP,
I have always been under the impression that a deficiency judgment was just that: court action to correct a deficiency.
If the lender ACCEPTS an amount that is less than what is due, such as in a short sale, then this is voluntary and I don’t see how they could seek a deficiency judgment to offset something they didn’t have to accept.
On the other hand, if the lender has to TAKE the property in a foreclosure action, this would be something quite different.
Is this not correct?
John (LV)
I do foreclosures in Florida which is a deed/mortgage and judicial foreclosure state. The foreclosing attorney usually makes a motion for the court to order a deficiency judgment which, if recorded in the state capital (something new under the Bush governorship), can attach to personal property as well as to real property (except the debtor's homestead). The judgment will only attach to real property if a certified copy is recorded in the official records of any county where the debtor owns (real) property. Once, after purchasing a property at foreclosure (on a defaulted 1st mortgage), I purchased the deficiency judgment from the 2nd mortgagee (original seller who held a purchase-money 2nd that got wiped out at auction.) It may sound contradictory, but: deficiency judgments still stand in Florida even though the mortgage itself is wiped out at foreclosure. They are separate entities. To go on with the saga - I then sought to levy on a piece of land the debtor owned in another county. I was the successful (and only) bidder at a Sheriff's sale (The Sheriff conducts sales for execution against all personal and non-mortgaged property, including vehicles.) I bought this piece of land sight unseen for $100 and paid about the same to the 2nd mortgagee for the purchase of the judgment. I then proceeded to take a look at the property I had just bought. It held a 14x80 mobile home with a tenant in it. Although I only owned the land, not the MH, I continued to collect rent in the amount of $375 for several years until the bank foreclosed on the MH. The bank also picked up the tab for the ad valorem (real estate) taxes during that period. It was easy money for a little cerebral work.
I have other similar stories............thanks to deficiency judgments.......
Since I am not allowed to post URLs, I would suggest you to do search on google for the following phrase:
"TO SHORT SELL, OR NOT TO SHORT SELL PHILLIP M. ADLESON, ESQ."
This will give you the link. Read and have fun.
big dreams
As I read your paragraph I think you have the idea of a deficiency judgement basically right but backwards.
A DJ is an obligation to pay the part that did not get paid. You want to see that the seller does not have one, and if this was a purchase money TD in Calif then there can be no DE. Even if it was hard money, there must be a forecloiasure by a judge rather than a trustees sale in order for the lender to get a DE.