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Permalink Reply by Tni LeBlanc (805) 878-9879 on April 21, 2011 at 11:07am

What state are you in?  I've had the same problem, but told them the seller would not accept it and we could not move forward until deficiency was waived -- about two days later I had a corrected letter. 

Permalink Reply by Tracey Martin on April 21, 2011 at 2:50pm

Here in California that is common. However, I have not heard of many cases where the second has pursued the seller. If the home were to go to foreclosure in California, the normal process is that the first gets the house and can not pursue the deficiency.

However, once the house is gone, the second's note becomes worthless and it can be treated as a unsecured debt, unless it is owned by the same investor as the first, or it was original purchase money. The unsecured debt can then be pursued. The borrower has no protection either way.

If you live in California, go to the CAR website and pull up the legal questions. There you will find, in writing, a statement stating the second can pursue once the paper becomes worthless, unless it was original purchase money.

Because, here the sellers are not protected from the second either way, and a short sale is better for their credit, it is in their best interest to go with the short sale. Of course this should be confirmed by an Attorney.

If you don't live in California, go up as high as you can in B of A and try to get them add forgiveness language. If they won't, your client has a choice to make. Have a foreclosure on their credit history or have a short sale on their credit history, knowing there is a possibility that the second may come after them.

If the second chooses to pursue, normally the note is sold to a third party collection company for 10 cents on the dollar. Knowing that the third party paid very little for the note gives your clients negotiating power to settle for much less then what was owed.

Another thing to consider; even though the second won't put it in writing, a lot of times they take what they get from the first and go away.