deficiency (10)

If you are at risk of foreclosure, you might want to know what the consequences are in the event that it happens to you. The evident and inevitable effect a foreclosure has is the ding on your FICO score as well as the foreclosure stamp on your credit report. This will make it very difficult for you to obtain any credit or even find alternative housing or employment. However, is that all to the negative effects of a foreclosure? Let’s explore deficiency judgments after foreclosure.

Recourse vs Non-Recourse State

In every state, there are different foreclosure laws regarding whether lenders can pursue you for the remaining balance after a foreclosure or not. Check HERE to see if your State is a recourse or non-recourse state.

If you are in a recourse state, then it is possible for your lender to sue you and obtain judgment for the remaining balance owed. If a judgment is entered against you, they may be able to garnish wages and/or seize any non-exempt property you owe. Although not likely, they may even be able to seize your vehicle but this of course depends on the state specific laws. It might be worth it to do a bit of research on the subject.

If you are living in a non-recourse state, the foreclosing lender cannot pursue but you are not off the hook yet!

Any otherlenders (2nd mortgages or even 3rd or 4th) ARE able to pursue you for the remaining balance.

We at seattleshortsaleblog have received numerous requests for help in dealing with subordinate lienholders whom after the home was foreclosed on, is now pursuing the homeowner via threatening judgment, judgment, or the popular strategy, selling off the debt to collection companies.

We feel it is better to pursue a short sale, and get a deficiency waiver prior to closing the sale. Those 10 words on the approval letter, “we hereby release our rights to collect a deficiency judgment” (or verbiage similar) are VERY IMPORTANT and in our opinion, better than hoping the lender will not come after you after foreclosure.

Hope this helps

Peter


Full Article Here: www.seattleshortsaleblog.com
Feel free to share the articles on my blog with homeowners in your area!

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If you’ve found this blog just by searching on the internet, there’s a good chance you’ve read the advantages a Short Sale can have over simply “walking” from the property and letting your lender foreclose.

In case you haven’t heard the reasons, let’s list some of them:

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1. No Deficiency – if you have a “recourse” loan in California, you can be subject to further collections and a deficiency judgment after foreclosure. On the other hand, California Civil Code 580

e prohibits lenders of 1st and junior mortgages from seeking the shortage after completion of a short sale.

2. Less credit impact – while it’s true that in many cases a Short Sale is treated equally as foreclosure in loan applications, keep in mind that a human (as opposed to a computer) will view a person’s attempt to settle a debt vs. simply walking from it reflects better character.

trustee-sale2.jpg?w=300&h=224&width=3003. Less Stress / Guilt – most homeowners that are facing foreclosure say that their biggest source of stress is uncertainty. The thought of a sheriff eviction or their home being listed as  a “Bank Owned” home shatters confidence. In a short sale, the sale of the home at least adds some certainty and timeline when to move on thehomeowner’s terms as opposed to the bank’s.

We’ll cover the biggest advantage of a Short Sale over Foreclosure in a minute.

In most cases, at least 2 of those 3 reasons are worth taking the time to hire a Short Sale Specialist and cooperating with showings of your home.

On the other hand, when does Foreclosure become the better option over a seeking a Short Sale Settlement?

1. When you have a non-recourse loan and your lender is requiring a significant cash contribution or promissory note. This is on a case-by-case basis and everyone’s situation will be different. You’ll need to put a dollar amount on how much the credit damage will cost you in terms of higher interest rates on credit and your ability to re-enter the Real Estate market while prices are low. If the lender’s amount exceeds this amount you estimated, then it’s not worth it. Of course, you’ll want an attorney to review your loan to see if it’s truly a non-recourse situation.

2. Short Sale becomes Counterproductive - The biggest advantage to seeking a short sale is maintaining the mindset of person who wants to move on from this “transitional” period in their life. Staying in “limbo” adds to a homeowner’s stress and doesn’t focus on recovery. When a short sale negotiation doesn’t go right, it can conflict this goal of recovery. Even after you hire a Short Sale Specialist Realtor to reduce your workload, there’s still time and decision making required on your side. If you have a foreclosure auction scheduled and the lender is unwilling to mutually postpone, attorney and court fees can pile up. When certain lenders or their investors get too difficult to deal with, it may be better to cut your losses and just let the lender foreclose after giving the short sale settlement a “reasonable” attempt.

Of course, you can offset some of the possible frustration with a sound gameplan. A seasoned Short Sale Specialist will know which scenarios are usually toughest to deal with: Mortgage Insurance (also known as “MI”), non-delegated servicing agreements, investors who usually don’t cooperate with short sales, homes with auction notices, notoriously difficult 2nd lenders (Chase, Greentree, Cal HFA, Bank of America, etc). You can read some of the horror stories here on this website. The key to any short sale negotiation is anticipation. You can be pre-emptive in determining possible payoffs, cash contributions from other parties, etc. 

3. The home is vacant and the cost of maintenance will be too high. A vacant home is a liability. If your home has significant costs outside of the mortgage (Homeowner’s Association Dues, utilities, insurance, upkeep of the pool, grass, etc) you have to compare which option will be faster. Put a dollar amount on these costs and see if it outweighs your estimate of how much credit damage a foreclosure will cost you. Regardless of which option you choose, a home gathering code violations from the city and delinquent HOA dues can come back to haunt you even after the sale is completed. Again, a good Short Sale Realtor will have other options including having your lender subtract the balance from the payoff amount or settling the costs.

4. Lienholders who won’t cooperate – These are usual private individuals (people you know) who have placed a lien on your home.  Yes, there’s a motto that “everyone has a price,” but my experience tells me that disgruntled parties may want only to make your life miserable. I’ve had ex-spouses of some of my clients demand full payoff or “substitute collateral.” I’ve had contractors who placed contractor liens and simply laughed when they were approached on a settlement. Again, a short sale is only worth so much money and your dignity.

Again, none of those above scenarios are no-brainers. At the very least, you’ll want an experienced Short Sale Realtor to review your situation. Be careful — there’s always someone desperate to take any listing to simply get a sign in your yard. A good agent actually turns down a good portion of short sales for the benefit of both parties.

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Another successful short sale - this one on Stratton Major in Centreville, VA. Our clients bought in 2006 for $642,000 and we sold it days ago for $450,000. We went back and forth quite a bit with the lender, Chase Mortgage, but they agreed to work with us and they granted our sellers a deficiency waiver on the unpaid balance. Below are pages of the approval letter:

Stratton%20Major%20Chase%20Approval%20Pg%201.jpg 

Stratton%20Major%20Chase%20Approval%20Pg%202.jpg

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No Deficiency Judgments after Short Sale due to Senate Bill 458?


 


There is good news for home owners who are considering short sales in California. Governor Brown signed Senate Bill 458 into law today. This new law prohibits servicers, lenders and investors from pursuing deficiency judgments against home owners of 1 to 4 unit residential property.

 

Deficiency judgments on similar properties were prevented by CCP 580e last year, but only on first mortgage. Senate Bill 458 extends this protection to second mortgages and other mortgages as well.

 


The protection of Senate Bill 458 shall not apply to home owners who commit fraud or waste or to LLC, corporations, limited partnerships, political subdivision of the state, lien secured by a bond as specified, or public utility lien. There are additional rules for notes that are cross collateralized with more than one property.

 


 


Disclaimer: This article is not intended as tax or legal advice. Those considering a short sale are advised to consult an attorney and/or tax professional regarding any potential liability. This article is not intended to solicit listings currently listed with another broker.

 

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About the author: Christine Donovan is a California Residential Real Estate Broker with experience in assisting clients buy and sell residential real estate.

Are you upside down in your home? Is it worth less than you owe? Are you concerned about making your mortgage payment? For more information see Options to Foreclosures, understanding short sales or contact me at christine@donovanblatt.com to discuss your options.

If you want to buy a home or to list your property for sale, please click Newport Beach homes, Costa Mesa homes, Huntington Beach homes or Orange County homes.  Click the link if you are interested in buying a home at a courthouse auction sale.

Contact me at christine@donovanblatt.com or 714-319-9751 to learn about her system which will make your buying and selling experience easier.

Disclaimer: All information in this blog is deemed reliable but is subject to change at any time and is not guaranteed to be accurate nor are there any warantees either express or implied. This blog is not intended to offer any legal, tax or other advice.

Federal Government Disclaimer (MARS) 

  1. You may stop doing business with us at any time. You may accept or reject the offer of mortgage assistance we obtain from your lender [or servicer]. If you reject or accept the offer, you do not have to pay us.  
  2. Christine Donovan, DonovanBlatt and Donovan Group are not associated with the government, and our service is not approved by the government or your lender; and 
  3. Even if you accept this offer and use our service, your lender may not agree to change your loan.

Click Orange County homes for sale to view all OC homes for sale.

 

 


Originally posted at No Deficiency Judgments After Short Sale?
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Hi folks. Do you ever wonder what happens after the Short Sale? If the lien holder states they will be contacting you after closing to make arrangements for you to pay the rest of the money you owe....do you believe them? Well you should.

I had a closing a few months ago where Bank of America was the 2nd lien holder. The lien was a HELOC (home equity line of credit) for $65,000. For those of us that work Short Sales we know that these HELOCs can be very unforgiving. The reason is that these loans are normally taken out after the property was purchased. In many cases the funds from the HELOC were used to purchase "toys", e.g., furnishings, cars, vacations and other goodies that having nothing to with real estate. The holder of the HELOC, in this case Bank of America, are not too anxious to take a loss while the borrower is driving around in a free and clear Hummer.

When it came time to negotiate the HELOC on the property the best we could do was get them the $6,500 allowed from the 1st lien holder, GMAC. Bank of America accepted this amount.

However, Bank of America's Short Sale approval letter specifically stated that the deficiency of $59,500 was to be charged off as a COLLECTIBLE balance and that they would be in contact with the borrower to make arrangements to pay this balance. Bank of America would not forgive the "Short".

The seller was however being forgiven almost $300,000 from GMAC on the 1st lien In fact, GMAC was stating that the 1st would be satisfied in full. Being that this was the case the seller decided to accept the terms from Bank of America, close the transaction and deal with the shortage later.

The transaction closed and all was well.

About 90 days after closing Bank of America contacted the seller to make arrangements for the money he still owed. The Seller negotiated with them for a couple of weeks and was able to get Bank of America to accept $2,500 as payment in full!

So in the end it all turned out very well. For a total payment of $2,500 the seller was able to be unencumbered from a combined debt of more than $350,000!! And he avoided having a foreclosure on his credit. I would say he did very well. What say you?

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Deficiency Judgment on Second with BofA

My seller has a first and second mortgage on their primary residence. We are in short sale negotiations and have an approved offer from BofA. My sellers are nervous about signing the def judgment waiver to allow BofA to pursue in the fuure. This only pertains to the second, since it was not purchase money. The amount of $44,000 is low, so I have been told that if the seller just waits 3-4 months they can contact the second lien holder and negotiate a lower settlement, say up to 10%, they would then receive a settlement letter and would be clean of any possible DJ in the future.

Does this sound valid?

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I finally received short sale approval from B of A last week after 9 months & 2 buyers. The approval on BOTH the 1st & and 2nd (both loans previously Countrywide) states that B of A may pursue a deficiency judgment. This is a second home for the seller and in California if she lets then property go into foreclosure both leins will be wiped out from the deficiency judgement. She is aware of the 1099-C, but does NOT want a deficiency judgment. I am now fighting with B of A to remove that verbiage so I can proceed with the short sale. Question - has ANYONE ever gotten B of A to remove the language?
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Second lienholder in this short sale situation is Wachovia requiring seller to sign deficiency note as a condition to release the lien on the property.Seller now states that she won't sign the deficiency and go to foreclosure and then file for bankruptcy.I have asked seller several times to seek legal advice throughout the process and she states that she has "spoken to someone about the deficiency note and was definitely advised against it. He told me that if the house does go into foreclosure because the lenders will not accept the short sale terms, then he advised me to file for bankruptcy"Besides the fact, that I don't know how qualified a person she spoke to, this doesn't make much sense to me especially the part of the "lender not accepting the short sale terms" as it seems to be the borrower who is not accepting them.What else can I say or do so she will proceed? Even after foreclosure couldn't the second lienholder still file for deficiency judgment? The mortgage document states that nothing shall impair lender's right to a deficiency judgment in the event of foreclosure against the borrower.Needless to say, there's been a lot of work and patience involved in getting to this point. Any comments and suggestions are appreciated. Thank you!
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Note demands by junior lein holders

The knee jerk reaction by many is to refuse to sign a note upon a junior lien holder’s demand. One may successfully argue that position. However, in the end if the junior lien holder will not let up the Borrower is not in any worse position if they sign the note.First, they already have a note with that lender on which the lender will sue. This new unsecured note replaces the original note that is secured by a mortgage. The Borrower can always attempt to settle that new note at some point in the future.The main advantage in signing the note is that the Borrower will have avoided the foreclosure and any possible deficiency judgment that may occur on liability to the first lender. Furthermore, in avoiding the foreclosure they may be eligible for a conventional mortgage once the Borrower does not have any mortgage late payments in the past 12 month cycle.Basically, we recommend all attempts be employed to avoid the proposed note and to seek a full release of liability. Typically, as a last resort the Seller may be able to offer some additional money at closing in lieu of the note. However, in the end there is virtually no reason not to sign the proposed note if that is the only way to avoid the foreclosure.
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Alas! There is more than one version of the Bank of America approval letter. One without the dreaded "deficiency" reference. Mind you, not stating they reserve the right to pursue a deficiency may not mean Bank of America has given up that right, but it does cause less trepidation.

Deficiency... what deficiency? My theory - they are leaving out the deficiency reference, but not "forgetting" about it!It's Wendy!Wendy Rulnick, Broker, CRP, CRS, GRI, ABR Rulnick Realty, Inc.
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