Hello everyone, this is my first time posting here and I have really enjoyed the wealth of information shared.

I have a seller who has been approved for an FHA Short Sale, we got a buyer and negotiated contract which has been approved by BOFA on the HUD90051 form.  The final HUD was submitted and ok'd all that was left were their closing and wiring instructions.. the HUD form 90052 and their deposit information.

 

On the day of the scheduled closing the negotiator advises that the contract has an error that has to be deleted or the transaction would not proceed.  What was the error?  The contract that was approved for over one month, contained a defficiency release clause in its special stipulations.  BOFA stated they do not allow defficiency release clauses in their short sale contract. The HUD mortgagee letter is sufficient.

 

I pointed out that the mortgagee letter was not a part of the purchase contract between the buyer and the seller and the document that was approved by the neogotiator included the defifciency clause.  Furthermore the defficiency release is an integral part of the purchase contract. 

 

In addition to all of this, the buyer's lender relied on this approval letter to proceeding with the buyer's loan processing, 2. Buyer's lender was also  required by BOFA approval letter to provide closing documents to the closing agent to ensure the buyer's side costs were included in the final HUD.  If there was a problem with the contract it should have been addressed BEFORE an approval was given and not ON the day of the scheduled closing.  

 

Since that time BOFA claimed they sent the file to HUD for variance to allow the defficiency release clause and HUD denied the request.  Seller is asking for written copy ..proof of HUD's denial and BOFA is refusing to provide it stating they cannot release internal HUD communication.

 

 Thoughts, suggestions education would be most welcome.  Thanks! LindaS

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  • LInda. I personally don't see anything wrong with the clause. It's really just a short sale contingency. I would however just place it on a separate addendum in the future instead of in the contract.

     

    I would also predict that many lenders will have an issue with this part:

    and (2) release Seller from any claim, cause of action, suit or judgment for the amount of the reduction in the payoff on said mortgage(s). In the event, the mortgage lender(s) do not agree to such reductions at least _____ days prior to closing, either Seller or Buyer may terminate this Agreement without penalty upon notice to the other party.

     

    Ideally we would like for all lenders to agree to this but the reality is they won't. Especially if you are in a deficiency state. I'm sure that's the part BofA is balking at. And again this deficiency release language really has no weight behind anyway. It gives the buyer and the seller an out but it does nothing to keep the lender from going after a deficiency. You could achieve the same thing by having that part of the clause read:

     

    "All terms and conditions of the short sale must be aacceptable to the seller."

     

    But of course I am not an attorney and this is just my opinion.

  • Hi Bryan It was a contingency see verbiage below:  Once the contract was approved by the lender the contingency would no longer apply because it would have been met. 

     

    What happened is BOFA on day of closing wanted the clause removed or nthey were not going to provide their wiring instructions.   But if it is moot then it shouldn't have been a problem for the lender should it?  I am trying to learn because i may have been taught incorrectly.

    Here it is:

    Buyer acknowledges that the sale of the Property will not generate sufficient cash to pay off the mortgages on the Property and the other obligations of Seller with respect to this purchase and sale transaction. This Agreement is therefore contingent upon Seller’s mortgage lender(s) agreeing to: (1) take a reduced pay off on its mortgage(s) in an amount sufficient such that the purchase price of the Property pays off the reduced amount of the mortgage(s), any other liens, judgments and other encumbrances on the Property, the real estate commission(s) owing to the Broker(s) and the other expenses of sale for which Seller is obligated under this Agreement without Seller having to pay any additional sums; and (2) release Seller from any claim, cause of action, suit or judgment for the amount of the reduction in the payoff on said mortgage(s). In the event, the mortgage lender(s) do not agree to such reductions at least _____ days prior to closing, either Seller or Buyer may terminate this Agreement without penalty upon notice to the other party.

  • You are correct. There is no deficiency with an FHA PFS. The HUD pays the lender in full.

    Not sure why you place no deficiency release language in the purchase contract. The lender is not a party to the contract and the language would not be enforceable anyway.

     

    But anyway it's a moot point. There is no possibility of a deficiency judgment with a FHA PFS.


    Jeff Payne said:

    Correct me if I am wrong, do FHA loans NOT have a deficiency after a short sale?  Might be a non issue. I believe we have a member on here who works for HUD.
  • Correct me if I am wrong, do FHA loans NOT have a deficiency after a short sale?  Might be a non issue. I believe we have a member on here who works for HUD.
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