Deficiency Judgments and Short Sales

November 28, 2010 By

Short Sales and Deficiency JudgmentsI recently shared my thoughts on the most frequently asked question that hits my inbox with respect to short sales. I stated that the most common question that people ask me is about the time it takes for me to obtain short sale approval. To read my answer to that question about short sale approval, please click here.

Interestingly, several short sale aficionados and Realtor® friends from throughout the nation commented on my post, and shared other common questions.

Broker Bryant Tutas of Florida told me that he is most frequently asked the following question:

Will the lender come after me for a deficiency?

The deficiency judgment is an important consideration in the short sale process.

First off, as part of the short sale, the bank agrees to accept less than the amount owed on the mortgage in order to settle the debt. But, what happens to the difference? Will the seller or borrower remain liable for the difference?

As a Broker and a Realtor®, I would advise anyone facing the situations I describe to consult with an attorney or an accountant. With that being said, borrowers should carefully review the short sale approval letter. The short sale approval letter is issued by the lender or the lenders and will specify the bank’s plans with regard to the deficiency balance.

Additionally, each state has different laws with regard to short sales and deficiency judgments. In California, for example, Senate Bill 931 (effective 1/1/2011) will offer some anti-deficiency protection rights to first lien holders. Anyone who is considering selling their home, as a short sale should seek clarification on the anti-deficiency measures in their state and also carefully read the short sale approval letter.

Sellers should keep a copy of that short sale approval letter on file and handy. Recently, I spoke with a short sale seller who was receiving aggressive phone calls from the bank about collection activity, after the short sale had closed. This seller had an approval letter that stated that the bank was not going to take any further action after the short sale. The seller was able to send a copy of the approval letter to the collection agents and the calls ceased immediately.

Anyone who is considering a short sale should understand the legalities surrounding the short sale approval letter and consult an attorney if necessary. Last, but not least, do not forget to keep a copy of the short sale approval letters!

Filed Under: Deficiency Judgments, sellers, short sale approval letters, Short Sale Tips, Short Sales, Tips & Tools for Agents

Latest News on Government Loan Modification Program

November 21, 2010 By

HAMPMy kids get fairly decent marks in school. They perform this way because it is expected of them. Unfortunately, however, our federal government and the mortgage servicers are currently not getting very good marks with respect to the Home Affordable Modification Program (HAMP)—even though good grades are expected.

Here are the latest statistics with regard to the successes of the HAMP modification program. You be the judge.

Less than 500,000 homeowners have received loan modifications and are current on their new mortgage payments since HAMP was launched in March 2009.

During this same period of time, over 5 million homes nationwide have received a foreclosure filing and nearly 2 million have been lost in foreclosure.

The United States Treasury released new statistics on November 17, 2010 in which they show that trial modifications transitioning into permanent modifications have averaged approximately 37,000 per month for the last six months. However, in October, only 23.750 permanent modifications were granted.

Beginning in June of this year, mortgage servicers have averaged approximately 23,000 new trial modifications per month. The trial modification is generally implemented during the document collection and review period.  The U.S. Treasury also reports that approximately 69,000 modifications have been languishing for over 6 months. Additionally, more than half of the 1,395,543 trial modification plans started have been canceled during the process.

So, when someone isn’t measuring up (like my kids with their school work), there are only a few people to blame: 1) the kids themselves for not getting their work done or not putting in the effort, 2) the teachers for not disseminating information effectively, or 3) the administration for not providing the appropriate support. So, with regard to the modifications, there are probably also three people to blame—the homeowner (for not providing the paperwork quickly and efficiently), the bank (for not processing the paperwork effectively), and the government (for not providing the appropriate support to the lending institutions).

When it comes to my kids, I always hope for straight A’s, but I’ll accept less. I’d like the HAMP modification program to also get straight A’s, but looks like I should be happy if it even gets a C-.

Liked this post? Here are a few more that may interest you that cover similar topics:

Avoid Loan Modification Scams

Latest News on Bank of America Foreclosures

Californians Learn About Senate Bill 931

Filed Under: hamp program, In the News, Loan Modification, sellers, Tips & Tools for Agents

Governor Approves Senate Bill 931

October 8, 2010 By

Governor Approves Senate Bill 931

Senate Bill 931On September 30, 2010, Governor Schwarzenegger approved and signed off on Senate Bill 931.

Here is a short summary of Senate Bill 931: Effective January 1, 2011, any mortgage lender who holds a first trust deed cannot obtain a deficiency judgment against the seller after a short sale.

If the first lien holder provides written consent to a short sale, this will obligate the first trust deed lender to accept the sales proceeds as full payment and discharge of the remaining amount owed on the loan.  This law applies to first trust deeds secured by one-to-four residential units, but does not limit the lender from seeking damages for fraud or waste by the borrower.

On September 30, 2010, Governor Schwarzenegger also vetoed Senate Bill 1178, a bill that would have extended anti-deficiency protection to those who refinanced their purchase money loans to obtain a lower interest rate.

Lots of things are going on in the pre-foreclosure arena these days. Here’s the latest news:

Title Companies Will Not Issue Insurance on REOs

States that Use Judicial Foreclosure

Major Lending Institutions Halt Judicial Foreclosures

Filed Under: Anti-Deficiency Laws, foreclosures, In the News, sellers, Senate Bill 1178, Senate Bill 931

Senate Bill 1178 Vetoed by Terminator

October 2, 2010 By

Senate Bill 1178 Vetoed by Terminator

Veto of Senate Bill 1178Just the other day, on Thursday, September 30, Governor Arnold Schwarzenegger vetoed Senate Bill 1178—a bill that would have provided homeowners who have refinanced with the same “anti-deficiency” protection they have in their original mortgage loans. As the law reads right now, this “anti-deficiency” protection is only provided to homeowners who have not refinanced. The ideology behind Senate Bill 1178 (Corbett) was that it would have extended this protection to homeowners who had refinanced in order to obtain a lower interest rate or who used cash from a refinance for home improvements only.

While this bill was supported by the California Association of Realtors® and other consumer protection groups, mortgage and banking institutions did not support Senate Bill 1178 as more mortgages would have been without “recourse” after foreclosure.

The current law was put on the books in the 1930s. At that time, the mortgage and housing industry was very different than it is now. Proponents of Senate Bill 1178 believed that California was ready for a change, yet sadly the Bill was vetoed.

In addition to this bill, Senate Bill 931 is still on the table in the state of California. Also, all participants in a short sale may be eligible for our government’s HAFA short sale program or the Mortgage Debt Relief Act of 2007

Filed Under: Anti-Deficiency Laws, In the News, sellers, Senate Bill 1178, Veto of Senate Bill 1178

How Long After a Short Sale Can a Lender Go After Me for the Difference?

April 16, 2010 By

Don’t you feel like it seems like the short sale game is changing on a daily basis? One day the government comes up with a new program that states our sellers are not liable for the tax portion of the forgiven debt only to find out that again they wasted the Tax Payer’s money (our money) because only a tiny pool of homeowners actually qualify! Listen in as I go over how long after a short sale transaction that a lender can go after our clients (the homeowner(s)), what to do when you are negotiated a short sale only to find out the lender requires the property be listed by a licensed real estate agent, the best place to find money today to finance our deals, and much more. Visit www.FridayCoffeeBreak.com for more real estate videos from Patrick Precourt.

Be sure to check out our brand new real estate management application, PropTrackr and take a free 14 day trial!

Filed Under: Business, buyers, deals, difference, entrepreneur, foreclosure, fridaycoffebreak, government, home, house, invest, Investment, investor, lender, mentoring, patrick precourt, Preforeclosure, Real Estate, sellers, short sale, Short Sales, video