We are getting ready to close on the sale of on my personal Chase short sale in California. One loan, which was a refinance, with no cash out, second home. The approval did not mention anything about a deficiency judgement, one way or the other. I am asking my agent to get something in writing from the negotiator. Any new thoughts or experiences with this?

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I have found that Chase often will add  no pursuit of deficiency language if you keep hounding them. Every non-HAFA approval letter I've gotten from them initially didn't have it in there. If you've put Chase on notice in your lisitng agreement and purchase agreement addendum/counter that your client will only go through with a short sale only if a full satisfaction of the loan and no pursuit of deficiency is agreed to and in your communications with them, then you can point back to that in your approval letter negotiations. "I've been saying all along through this whole process that borrower only agreed to do a short sale if....." Then ask nicely to put the language in. If they say no, then say, I thought we were all acting in good faith...supervisor please.

Below is Freddie Mac’s policy regarding deficiency balances that I received in response to my email to them:

________________________________________________________________________________________

Here's the statement that our legal department prepared about FRE short sale policy:

Please be advised that Freddie Mac would not pursue the deficiency after short sale provided the borrower negotiates the short sale in good faith and there is no misrepresentation or fraud discovered.

Please accept this as the best acknowledgement/clarification of our policy.

Best,
Borrower Outreach

________________________________________________________________________________________


Here is the legal notice we just received -

LAW AGAINST SHORT SALE DEFICIENCIES EXPANDED

 

In a major victory for REALTORS®, Governor Brown signed into law today a C.A.R.-sponsored bill, Senate Bill 458, prohibiting a deficiency after a short sale for one-to-four
residential units, regardless of whether the lender is a senior or junior
lienholder.  Effective immediately for transactions closing escrow from
this day forward, both senior and junior lienholders cannot require a borrower
to owe or pay for a deficiency in a short sale.  This law also prohibits
any deficiency judgment to be requested or rendered for senior or junior liens
after a short sale of one-to-four residential units.  Any purported waiver
of this rule shall be void and against public policy.

 

Although a lender cannot require a borrower to pay any additional compensation in exchange for a
short sale approval, the new law does not prohibit a borrower from voluntarily
offering a monetary contribution to a lender in hopes of obtaining a short
sale.  A lender is also permitted under the new law to negotiate for a
contribution from someone other than the borrower, such as other lenders,
agents, relatives, and the like.

 

Exceptions to the new law include a lender seeking damages for a borrower’s fraud or waste; a
borrower that is a corporation, LLC, limited partnership, or political
subdivision of the state; a lien secured by a bond as specified; a public
utility lien; and additional rules apply if a note is cross-collateralized by
more than one property.


This law is fully set forth as Senate Bill 458 (Corbett) at www.leginfo.ca.gov

Hi Jim,

My loan as far as I know, did not have MI, and in the approval process there was no mention of an MI company needing to approve the short sale. How can I find out if MI was on the loan? Thank you!

Jim McCormack said:

Find out if Fannie Mae or Freddie Mac owns the loan.  According to information I received from both, they do not pursue deficiency judgments in short sales where there is no fraud.  I have an email from Freddie Mac's legal department stating that.  Fannie Mae reps have told me this verbally.  However, if you have mortgage insurance than the MI company would still retain the right to pursue you for the deficiency via subrogation.
If the original LTV was greater than 80% there is MI. Look at the HUD-1 from when you purchased the property.  The MI company should be disclosed unless it is LPMI (Lender Paid Mortgage Insurance).  In that case, you would not necessarily know who the MI company would be.  However, again the loan would need to have exceeded a 80% LTV for this to even be considered a possible issue.

Update.  Fannie Mae is now selectively pursuing deficiencies as of a phone call today.  However, that may have been their original policy and the rep just told me for all intents and purposes they don't pursue them.

 

Not all loans above 80% LTV had MI as there were options for higher interest rates without MI.  If you have a mortgage loan statement it will usually show the MI portion of the payment on there just like the taxes and insurance.  A year end escrow account statement will do the same.  If you do not have those, or they are unclear, you can just contact the loan servicer and ask them.

Correction to Jim's last post: as a matter of policy all loans above 80% LTV had MI.  As Jim's stated they were at a higher interest rate because that higher rate was used to pay the MI company.  As I mentioned in my most previous post this is referred to as LPMI (Lender Paid Mortgage Insurance).  Trust me, if the LTV was greater than 80% there will most certainly be a MI company involved in the decision process.
I can't speak as to whether there actually was MI behind the scenes, but the loans were advertised as no MI loans (I sold properties with those loans).  Therefore, it is possible that the lender just paid for the MI and the "labeling" of the loan was incorrect or even misleading.  The implication here is that if your monthly payment does not have an escrow allocation for MI then it really tells you nothing if what Stephen said is correct.  Therefore, verify with the loan servicer to obtain the MI information.

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