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.
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.
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.
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.