Wells Fargo New Approval Letter does not provide a waiver of deficiency!!! Has anyone had this issue recently??!!!

Just received an approval from Wells Fargo it seems they now have new verbiage which states, "With the exception of a Home Affordable Alternative (HAFA) closing, nothing in this Demand Statement or in the release of the mortgage shall waive the right to seek a deficiency under the loan documents or any of its other rights there under, and the obligations evidenced by the note shall remain in full force and effect until paid in full."

 

Seller refuses to close unless we obtain a "FULL WAIVER OF DEFICIENCY"!!!  I called the Final Negotiator and requested such, however, she told me this is the new language and not her nor her supervisor or anyone else for that matter can change this verbiage;  WF legal department is aware of this.  Is there anything that can be done????????????HELP!!!!!!!!!!!!!!!!!!!!!!!!  In the meantime we have an approval but the seller will not proceed!!!!

 

Any suggestions will be greatly apprecaited!

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They must have just made this change because my recent WF deals all have a full waiver in them. Here's an article I just wrote about deficiency waivers that may help.

One thing is for certain if they let it go to foreclosure they will have a judgment placed on them. There's a HUGE difference between a lender not waiving their rights and actually getting a judgment.

Push as hard as you can to get the waiver. Have the sellers call them and plead their case. But if they won't put it in writing the sellers are much better off to close anyway. IF and that's a big if the lender does indeed come after them later there are remedies they can take at that time.

Of course I am not a  attorney. This is just my opinion as a Florida real estate Broker who has had many successful short sales. I am not aware of any of my sellers ever having a judgment placed on them.

I hope this helps.

The real question is: Why did you take a listing where the seller refuses to close if there is a deficiency?  You can NEVER guarantee no deficiency in a short sale. Have an attorney explain that he has two choices: Close with a deficiency (they probably will issue a 1099 anyways, waiving collection rights) or he can let the property go to foreclosure....and still owe a deficiency.

In my experience, there are two letters that Wells Fargo uses, one with waiver and one without waiver.  In every case, I have been able to "buy" the waiver with a cash contribution...which have usually been able to be made by seller, buyer, agent(s) or any combination.

I have one right now where we got the buyer to agree to pay up to $5000 in addition to the purchase price (at the unset, we had them lower their offer by $5000 and agree to this contribution) to pay for contribution for deficiency waiver.  We just received the contribution demand from Wells of $6400 for deficiency waiver, which we successfully negotiated down to $3200.  The buyers are paying, and actually happy because they are ultimately being rewarded by saving $1800 due to their flexibility.

While I agree with Joseph's general premis that the sellers should have been aware of the possibility of no deficiency waiver, there are cases where the seller should NOT CLOSE if deficiency is withheld, like in SC where the lender starts foreclosure waiving deficiency, or demanding it.  In my example above, the seller is being foreclosed on deficiency waived.  I told her that if I cannot get the deficiency waived, then she should seek legal advice on whether or not she should proceed, and her attorney will certainly advise her to let go to foreclosure where there is no deficiency, and I would agree with that advice.  I would not as a blanket rule, refuse to take a listing where the seller will not close if the lender will  not waive deficiency.  If there is a high likelyhood that I feel I can get the deficiency waived, then I have no problem trying, and if I cannot, and it is better for the seller to let go to foreclosure, then so be it, I tried my best to make an unfortunate situation better and was unsuccessful.

Sam is correct in that the seller should seek legal counsel.  My point is that if, during the listing meeting, a seller states that they will not sell if there is a deficiency....walk away.  Since you cannot guarantee it, you can waste everyones time.

If there is no MI or second lien, we are over 90% success rate in getting all deficiency waived.  I would certainly not turn down a listing with no MI or second lien that said they will not close without deficiency waiver.  That is a 90% chance of success and pay...obviously don't guarentee anything, present the reality that you will try your best, and try your best.  Nothing in a short sale is guarenteed, including deficiency waivers, but that does not mean you don't try.

Now if there is a second mortgage or MI, and you know there is a low liklihood of getting all deficiency waived no matter how creative and good you are, then absolutely, walk away.  But I would be a little more thoughtfull then to blanket reject all deals wither the seller refuses to sell without deficiency waiver.

From Feb...first letter when we catagorically rejected any cash contribution

 

"With the exception of a Home Affordable Foreclosure Alternative (HAFA) closing, nothing in this Demand

Statement or in the release of the mortgage shall waive the right to seek a deficiency under the loan documents or

any of its other rights thereunder, and the obligations evidenced by the note shall remain in full force and effect

until paid in full."

A week later, second letter when we, with our tails between our legs said uncle and agreed to the cash contribution.

 

"When Wells Fargo Home Mortgage receives the required payoff and all required documentation, we will arrange

for the mortgage of record to be released. Wells Fargo Home Mortgage will notify the mayor credit bureau(s) to

reflect "account paid in full with less than full balance” which should appear on the credit report within 60-90

days the date of notification, however, Wells Fargo Home Mortgage is not a credit bureau and cannot control how

or when the report will reflect information to other users of credit reports. Compliance with this Demand

Statement coupled with release of the mortgage shall waive the bank’s right to seek a deficiency under the loan

documents or any of its other rights there under, and the obligations evidenced by the note."

Thank you all for your replies. We never promise a "deficiency waiver", however, some seller's come up with this later in the process. Currently we are trying to negotiate a cash contribution in order to obtain a deficiency waiver, (whether it comes from the seller, buyer, or realtors) if that doesn't work, than it's up to the seller, at least we tried and did everything we can possibly do for them! In many cases the seller sees the light and does close, as the options are not in their favor.

Once again thank you for your replies and suggestions!

 

 

The reality is, there are times when the options are in their favor.  A short sale does not always yeild better results for the seller then foreclosure.  I am aware of a situation right now in my local market (happend a couple years ago), where the seller was being foreclosed on with deficiency waived action by the bank, and their agent negotiated a short sale for them where the bank refused to release deficiency...their agent told them that the banks was refusing to waive the deficiency and that the short sale, even with deficiency, was a better option then foreclosure.  I know the agent and it was not out of greed that they made this point, they actually beleived it, they were just not educated as to the full extent of what foreclosure means.  Guess what...the seller was just served that they are being sued for the deficiency by the bank two months ago!!  OOOOOpps!

Did the seller have a better option?  You bet, they could have let go to forclosure, they deficiecy was waived and other then a bigger credit ding, they would be free and clear, now they are facing a six figure judgment...and the agent I am sure will be sued.

Do your homework if you are messing with short sales, and make sure your sellers get sound legal advice.  And never, ever, let your commission get in the way of what is better for the seller.

It is also never guaranteed that deficiency would be waived in a foreclosure.  This is why I REQUIRE all sellers to have legal council. If you are discussing these matters with your sellers then in the eyes of the law you are practicing law and YOU now can be sued or lose your license. Almost all states have ruled that you do not need to be an attorney to do a short sale, but almost all have ruled that matters of deficiency are certainly the practice of law.  Refr to the attorney.

Joseph,

Just out of curiosity, how does the conversation of deficiency come up in the listing appointment if, as you mention above if you are not discussing it, and if you are discussing it, then you are practicing law?  Not sure how this one is avoided?  I think it is perfectly appropriate to discuss the fact that there could be deficiency issues, in a short sale or in foreclosure.  Of course you have to refer to attorney for advice and discussion about what the deficiency issue would mean to them, you cannot simply ignore the d word.

Reality is simple, there are many state foreclosure laws, and making some of the catagorical points that have been made on this thread and many others I read, can be very harmful.  Like the one you mentioned "Have an attorney explain that he has two choices: Close with a deficiency (they probably will issue a 1099 anyways, waiving collection rights) or he can let the property go to foreclosure....and still owe a deficiency."  That is not always the case, and should not be represented as the result of what the attorneys explanation will necessarilly be.  The choices are not always that cut and dry...and as a matter of fact, are usually not.  In my state, if the foreclosure action is dificiency waived, which it is 75% of the time and disclosed early in the default process, the foreclosing bank has no future legal recourse.  It would be malpractice in my opinion for an attorney to make the above presentation, if in foreclosure, there is no deficiency.

So yes, refer to an attorney, always, but that does not mean that you bury your head in the sand and ignore the reality of the laws in which you operate.  Taking the blanket stance that a seller should close on a short sale even if the bank will not waive deficiency, and that the listing should not be taken otherwise, seems to be a little reckless.

Agree!  Here in California before the laws protecting Borrowers from deficiency pursuit were put into action (expire 12/31/12 by the way), I got many approval letters with no verbage for relase of right to pursue.  I referred sellers to attorneys and every time, the Sellers were counseled to let it go to foreclosure.  Once it goes through the Trustee Deed Sale, the Lender gets the house and nothing else.  No pursuit.  It depends on the situation as always..

This will be interesting to see if WF in the capacity as servicer for Freddie applies this new policy. I believe this policy to be in conflict with new Freddie servicer guidline. See below:

Bulletin

NUMBER: 2012-5

TO: Freddie Mac Servicers February 15, 2012

 

DEFICIENCY FROM SHORT PAYOFFS AND DEEDS-IN-LIEU OF FORECLOSURE

We have updated the Guide to reinforce the requirement that the Servicer, for itself and on behalf of

Freddie Mac, must waive all rights to pursue payment of the remaining balance owed by the Borrower

under a Freddie Mac-owned Mortgage for all approved short payoffs and deed-in-lieu of foreclosure

transactions that have closed in accordance with the Guide and applicable law.

Sections B65.41, Closing, Reporting and Remittance Requirements, and B65.48, Closing, Reporting and

Remittance Requirements, have been updated to reflect this additional information.

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