If seller signs promissory note, can they still be issued a deficiency judgement?

If seller signs prom note, does that modify the mortgage and release them from future deficiency amounts?

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Permalink Reply by Jeff Bradshaw on March 8, 2011 at 9:41am
Only if the release of deficiency is in the settlement. I just got of of the phone with an attorneys office that handles my short transactions this morning and had this exact conversation. She was telling me of a client that she recently had that in a previous short sale had signed a prom note with the lender. The lender then sold the remaining amount to a collection company that is now pursuing the client. Hope that helps with your question
Permalink Reply by The Negotiator on March 8, 2011 at 10:16am

Absolutely not. If there is a prom note, make sure that the letter of approval gives full satisfaction. Otherwise, the prom note is just increasing the deficiency. I just had that happen to me. I told the lender that I wasn't even going to ask the homeowner to sign if there isn't full satisfaction.An hour later they faxed me a new L.O.A. with full sat.

 

"Mr./Mrs. Homeowner, please sign this prom note so you can increase your liability to the lender and I can still get my commission." HAHA

Permalink Reply by Bryant Tutas on March 8, 2011 at 11:12am
Have to make sure the original note is satisfied in full. But of course as always the seller needs to seek legal advice.
Permalink Reply by Bob Bridge on March 8, 2011 at 3:53pm
That is the deficiency judgement (the note)
Permalink Reply by Jeff Payne on March 9, 2011 at 10:45am
Thanks for the replys,  I tend to think like Bob Bridge does but have not been able to get any one to give me their actual legal opinion.  My thought is that the new note modifies the old mortgage and the bank would have a difficult time pursuing a deficiency.  Maybe we could get our resident Florida attorney to weigh in on this, what say your Richard Z?
Permalink Reply by The Negotiator on March 9, 2011 at 10:57am

It doesn't take an attorney to realize that the new prom note does not legally wipe out or "modify" the original note. I understand you are hoping it does for your clients sake and for your sake of time, but, it doesn't. In order to "modify" something, there has to be a paper trail. A verbal "yes" from the lender doesn't count. If you can show the new note stating that it replaces "loan XXXX as recorded in public record XXXX on XXXX date" then you would be right to assume the new note replaces the old note.

 

HOWEVER, that being said, I think a judge might rule in favor of the homeowner if something like this ever did go to court because the judge would wonder how asinine the lender was for doing this.  8-D

Permalink Reply by Jeff Payne on March 9, 2011 at 11:03am

Yea, I know, wishful thinking :)  But my thought is still that since the original loan number is on the promissory note itself, I think the lender would have a hard time collecting a deficiency. 

Permalink Reply by The Negotiator on March 9, 2011 at 11:06am

Try thinking in legal terms, not logical terms. LOL

 

I think the bank would argue in court that the original loan number on the note is simply a file #. I'd have to see the letter to know for sure. I do hope you are right, though! Good luck

Permalink Reply by Jeff Payne on March 9, 2011 at 11:09am

Logic?  I forgot what that means since I started doing short sales!  The letter says lender loan #  AND Fannie Mae Loan # on it.

Doesn't really matter, my seller is going to sign it and if they try to pursue a deficiency, he is just going BK.  He is trying to do the right thing by signing the note but his credit is ruined and he would not lose much if they force him to BK

Permalink Reply by Michael Schneider on March 9, 2011 at 11:57am

I don't think a prom note would result in an automatic waiver of the right to pursue the deficiency, unless this is stated somewhere in the note or other agreement, or prohibited by state law.

Logically, it makes no sense to agree to a substantial cash payment or prom note, without the wavier.  But, I think the waiver would need to be stated explicitly, at least, here in CT.

Permalink Reply by Jeff Bradshaw on March 9, 2011 at 12:26pm
Jeff, Read the first response that I put. I have been using an attorney to negotiate many of my short sale. We were just talking about this. She had a client that had done a short sale(not my client) and the other agent thought like you are that a prom note would change the note and that is all that would be owed. But that wasn't the case, the lender a Credit Union did not have deficiency release language and not only got the prom note but sold the rest of the debt to a collection company that is now pursuing that seller. A Prom note does not release them of deficiency. Make sure you have deficiency release language in your settlement notice.
Permalink Reply by Jeff Payne on March 9, 2011 at 12:36pm

Jeff, just thinking out loud...on of these days I will learn :)  Would love to know if anyone has ever fought this and what the outcome would be.

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