Credit Union demanding full recourse on shorted second

My client has two mortgages with a local credit union. We submitted a short sale package that only shorts the second mortgage. The second will be shorted about $65,000 out of the total $85,000 balance. We showed a pretty significant hardship ... enough, I believe, to be able to pass federal means testing for bankruptcy. However, the approval they sent back is contingent upon the execution of a "short sale agreement", and they reserve the "right to pursue any deficiency".

The bank's negotiator said that they very rarely forgive ANY portion of the deficiency.

I was rather shocked by this. This is the first time that I've helped somebody short a credit union. Is this typical?

The bank's negotiator made it sound like there wasn't much point in trying to negotiate anything. She distanced herself quite well from the will of the investor.

I certainly don't want to scare the buyer away, but does anybody have any recommendations for proceeding with this? Should I take the bank at their word and not try to play hardball with the numbers on a short sale promissory note?

We told the bank that if they don't forgive the debt, the seller will probably just file for a bankruptcy after the closing, and she most likely will with no debt forgiveness.

-Steve

approval_letter.pdf

Replies

Smitty December 8, 2010 at 3:33am

I've had the same thing happen with a local credit union. The credit union scared the seller so much, that they ended up canceling the sale.

I've heard you can try to contact the investor but I've never done it. Also, if it's a portfolio loan, there likely is no investor as the credit union held it in house.

I wish I was more help. Bankruptcy will put them in a position where the credit union cannot go after them for the balance, but it certainly doesn't make the homeowner warm and fuzzy. They can file bankruptcy AFTER the short sale as well. Sometimes lenders reserve the deficiency language but never go after the homeowner.

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