Recent changes with Chase short sale and the deficency balance

I was wondering if anybody has a recent experience with Chase on a 1st or 2nd mortgage(no HELOC), and he/she was shocked because after and only after got the approval letter noticed Chase would hold the seller liable for the deficiency balance. And Chase only release the lien for the short sale, not the loan. My problem was they never, ever discussed with me during the negotiation that the seller would be liable for the deficiency balance. this happened to me twice. In one case they even gave me 2 approvals without holding my client liable for deficiency, but buyers walked away. then the 3rd time that they approved the short sale, they agreed to remove the lien for the short sale, and kept my client liable for the deficiency. I think this is very deceptive. Why Chase negotiator doesn't say anything since the Beginning? they don't even ask for cash contribution or promissory note. Do they expect possibly some body missed it and sign the letter then they go after people? they know nobody do the short sale and be liable to pay 200-300K deficiency balance. Why they do this? thanks in advance for your comments.

Replies

Alyce Nelson April 11, 2011 at 6:46am

Chase... I groan when we get a Chase, They are one of the worst in my experience. They have been doing this for years... nothing new. Just make it part of your initial lender interview to clarify their position up front on deficiency and release of lien; and then have the discussion AGAIN once you get your negotiator. We always ask the offer to contain the words "with no recourse to the seller" so we can force the issue with the negotiator if we run into problems. It doesn't always work, but sometimes it does. Good luck!
Alyce Nelson April 11, 2011 at 6:40am

I too am a CA agent.   Be careful with this... it works great with original purchase money loans, but if the seller refinanced and pulled money out for purposes other than property improvement you could be challenged and still see them pursue a deficiencey. Please clarify this with your legal counsel.

Thom Colby said:

Azizeh,

Since you are in California, Google SB931. If the bank approves the Short Sale, there is no deficiency on the 1st. The 2nd is a different story. This became effective on January 1, 2011.

THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

SECTION 1. Section 580e is added to the Code of Civil Procedure,
to read:
   580e. (a) No judgment shall be rendered for any deficiency under
a note secured by a first deed of trust or first mortgage for a
dwelling of not more than four units, in any case in which the
trustor or mortgagor sells the dwelling for less than the remaining
amount of the indebtedness due at the time of sale with the written
consent of the holder of the first deed of trust or first mortgage.
Written consent of the holder of the first deed of trust or first
mortgage to that sale shall obligate that holder to accept the sale
proceeds as full payment and to fully discharge the remaining amount
of the indebtedness on the first deed of trust or first mortgage.
   (b) If the trustor or mortgagor commits either fraud with respect
to the sale of, or waste with respect to, the real property that
secures the first deed of trust or first mortgage, this section shall
not limit the ability of the holder of the first deed of trust or
first mortgage to seek damages and use existing rights and remedies
against the trustor or mortgagor or any third party for fraud or
waste.
   (c) This section shall not apply if the trustor or mortgagor is a
corporation or political subdivision of the state.

Best of luck,

Thom Colby

Broker

Newport Beach CA
Thom Colby CA Brkr 888-391-5245 April 10, 2011 at 4:40am

Azizeh,

Since you are in California, Google SB931. If the bank approves the Short Sale, there is no deficiency on the 1st. The 2nd is a different story. This became effective on January 1, 2011.

THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

SECTION 1. Section 580e is added to the Code of Civil Procedure,
to read:
   580e. (a) No judgment shall be rendered for any deficiency under
a note secured by a first deed of trust or first mortgage for a
dwelling of not more than four units, in any case in which the
trustor or mortgagor sells the dwelling for less than the remaining
amount of the indebtedness due at the time of sale with the written
consent of the holder of the first deed of trust or first mortgage.
Written consent of the holder of the first deed of trust or first
mortgage to that sale shall obligate that holder to accept the sale
proceeds as full payment and to fully discharge the remaining amount
of the indebtedness on the first deed of trust or first mortgage.
   (b) If the trustor or mortgagor commits either fraud with respect
to the sale of, or waste with respect to, the real property that
secures the first deed of trust or first mortgage, this section shall
not limit the ability of the holder of the first deed of trust or
first mortgage to seek damages and use existing rights and remedies
against the trustor or mortgagor or any third party for fraud or
waste.
   (c) This section shall not apply if the trustor or mortgagor is a
corporation or political subdivision of the state.

Best of luck,

Thom Colby

Broker

Newport Beach CA
Smitty April 8, 2011 at 11:41am

Azizeh, usually you won't know until the approval if they are reserving their deficiency rights. No one knows until the approval letter is issued. I'm sorry this happened. When you are working with homeowners you have to tell them up front this may be a possibility.

Many times lenders issue approvals reserving their deficiency rights and never pursue. They could, but that's one reason I never put in a buyer's highest offer to start. It's a negotiating tactic. If the buyer's are willing to bring more $$ to the table you can have a chance at negotiating that language out of the approval.

You have to expect the unexpected in short sales.