I understand per HUD guidelines there will not be a deficiency judgment...I have read through all the paper work for the FHA approval and can not find that stated in writing. Also my client had an equity line of credit 5 years ago and is concern about them coming after him for that. We are to close in a week and they are getting worried about this. Any info or experience on how FHA deals with these issues?

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Judith. With a FHA PFS the deficiency is waived. BUT this only applies to the first lien.

Judith. I also wanted to point out that there is NEVER a deficiency judgment with a short sale. However they is ALWAYS a deficiency. What you are really wanting to know is "What will happen to that deficiency after the short sale. In an ideal world it is forgiven As it is with an FHA PFS.

 

In order to get a judgment the lender has to back in front of a judge and ask for it. It is not a given. In Florida which is a deficiency State the lender has 5 years to file. So the real question is "Will they file for a deficiency judgment AND will the judge give them one?"

 

I guess if the borrower has substantial income and assets they should be concerned about this. If they don't then will the lender throw good money after bad to try and get a judgment when there are no assets and little income to garnish? Maybe, maybe not. What's more likely is that the lender will sell the note to a debt collector. Then the debt collector can try to collect some of it.

 

I hope this helps.

Of course I am not an attorney and this is just my opinion. 

Hey Judith. Take a look at Page 5, halfway down of the PFS guidelines attached. If you need extra help just call the HUD servicing department.

 



 

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I am also a listing agent in CA. and short sales here are less inclined to have issues with deficiencies..but seconds are always open as are HELOC's.  I NEVER close a Short Sale without deficiency language in the Approval letters.  The Lenders normally put it in without being asked, but if not..you must insist! 

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