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I am wondering if anyone can clarify the situation I have as the Realtor with an FHA shortsale with Chase, with a second mortgage (Educator's Credit Union), especially regarding deficiencies.

Chase holds a first mortgage, FHA, while ECU holds a second. We have an accepted offer at the FHA appraised value, Seller is in the Preforeclosure Program (PFS) for a second time currently. Chase had filed expedited foreclosure, which here in Wisconsin means that, if foreclosed upon, they have waived the right to seek a deficency. Chase has issued conditional approval for the short sale, contingent on the usual things including the 2nd releasing their lien. No requirement for the seller to sign anything re; agreeing to carry a note or be responsible for a deficiency, but no express Waiver of Deficiency was provided either.

Meanwhile, the 2nd mortgage holder ECU seems potentially willing to release the lien and approve the short sale, without making the seller make arrangements for the balance... however they state that they want to make sure that "the seller knws he remains responsible for the balance".

Questions:

1) Under an FHA loan with a seller in the PFS program,  after Chase's filing for foreclosure in a way that, if foreclosed upon, would eliminate their right to collect a deficiency in this state, can Chase go after a deficiency? Do we specifically need the Waiver to prevent them from doing so? Does the FHA short sale program preculde them doing that?

2) Can the 2nd mortgage holder still pursue the seller for the deficiency on the second after releasing their lien and approving the short sale? The 2nd is for 50,000 and they will get none of it in the short sale except the $1500 Chase promises and the $1000 FHA seller incentive that the seller has agreed to sign over back to the 2nd mtg holder.  Does the seller being "responsible for the balance" really mean anything if the 2nd, being secured only by the property and in a junior lien position, is not converted into a note or other instrument of debt?

Thanks in advance, the expertise of the membership is greatly appreciated. Time is ticking on the contract deadlines for lender approval.

Ben