Short Sale
My partner and I have successfully negotiated a short sale on a first and second mortgage. The only trouble is that the first mortgage will not accept payment w/o pursuing a deficiency judgement. Their reason is that the homeowner is 24 years old and she has the potential to be able to pay the difference in the future. Has anyone out there had this happen and been able to get the lender to overturn that? Any feedback is greately appreciated.
Thanks in advance,
Steven Logreira
From my experience, a deficiency judgement will not be overturned. The reasoning the first mortgage provided is valid. They are taking a loss and their expectation is to not let the borrower off the hook easily based on their future earning potential. This is going to affect the seller for quite awhile so in all honesty you should let them know if they don't already know about it.
In my experience, 'pursuing a deficiency' is not the same as asking the mortgagor to pledge to repay the amount of the shortfall. This is usually made a part of the short sale approval by requiring the Sellers to execute a promissory note in exchange for the mortgagee's release of their security interest for an amount less than they are contractually due.
I would suggest to the Seller that this amount (sometimes in the form of a zero interest loan repaid over 5 years) is an inexpensive way to preserve their future creditworthiness.
What price can one put on one's ability to borrow at reasonable rates?
So is it normal procedure for the bank to get a deficiency judgment, where they just get the judgment and walk away? And then only in rare circumstances do they pursue it or, before releasing the lien, require the borrower to sign a new note for the deficiency?
though foreclosure laws and customs may differ from state to state...
A deficiency judgment, a separate judicial action, is sought and obtained only after the property has been sold at sheriff's sale, or otherwise taken in a foreclosure procedure. Only after the event (foreclosure sale) can loss be ascertained.
To my thinking, by accepting a short sale payoff, the mortagee forfeits their right to pursue a deficiency judgment.
Sometimes a mortgagee will require that the Seller in a short sale, make a cash contribution to the shortfall... or execute a promissory note as a condition of the short sale approval.
Depends upon how you present your Proposal.