Short Sale Tip of The Week 6-24-09

Posted on 23. Jun, 2009 by ctlms in Short Sale, foreclosure

What are the consequences of a short sale? Part 3

This week I am going to finish up the discussion on short sale consequences for a homeowner that must sell via a short sale.  This weeks topic is the deficiency balance.

I posted on this topic in my tip of the week on 5-13-09 so I will just sum up the topic here.

When a short sale is approved as a release of lien only, the sellers are still open to the possibility of the lender trying to collect the balance in the future.  This is NOT an acceptable short sale approval letter.  It leaves the sellers open to any and all collection options that are available to the lender at any time in the future, even after they get back on their feet financially.

These approval letters should be rejected and negotiated to a pre-arranged promissory note.  We always try to negotiate those notes for much less than the deficiency balance and at very low or no interest.  The difference between the promissory note and the deficiency balanced is forgiven and the sellers would receive a 1099-C for that amount.  We discussed the promissory notes extensively in tip of the week on 5-13-09.

As I have stated before, a satisfaction of the note is the best approval.  However that is not always an achievable outcome and the promissory note is the next best thing.  A well negotiated promissory note is by far more favorable to the sellers than an open ended ability by the lender to try to collect on the entire deficiency.  The lender would often sell the right to collect that debt to a professional collection agency that will relentlessly pursue the sellers.

That raps up this mini series on short sale consequences.  See you all here next week for my next Short Sale Tip of The Week.

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