SHORT SALE CLOSURE? Think Again! Some Lenders Insist On Note Attempt Court Action to Cover Shortfall!
SHORT SALE CLOSURE? Think Again! Some Lenders Insist On Note Attempt Court Action to Cover Shortfall!
ALTHOUGH IL LAW RESTRICTS DEFICIENCY JUDGMENTS PROMISSORY NOTES COMMON ESPECIALLY ON SECOND HOME LOANS!
Short Sales!
In today’s market many home owners and their Real Estate Professionals attempt this often lengthy gut-wrenching process in order to take an oppressive loan – higher than the home’s current market value – off the back of a troubled homeowner selling in distress.
Often times these days many who sell short don’t have to satisfy only one lender holding their home mortgage. Some have to satisfy two even three!
During the Boom Market Days – in Chicago as recently as mid-2006 sub-prime loans small piggy-back loans where the borrower could receive 100% or more of the home’s value and easy high-leverage Home Equity Lines of Credit made for easy money. The whole world thought big annual percentage increases in home values would continue forever.
The prediction for the next couple of years however is not so rosy. According to Moody’s Economy.com more than 3.8 Million homes will be lost across the U.S. through 2010 because their owners won’t be able to keep current on their mortgage payments.
When the bubble burst however median home prices actually began declining in value – over 20% in some Chicago Neighborhoods over the last 12 months. Combine this price depreciation with multiple high-leverage home loans and mix in resetting adjustable mortgage interest rates and thousands of people in the Chicago Metro Area as well as tens of thousands across the U.S. began to get into trouble and selling short was the only way out.
Although virtually all mortgage lenders have shown willingness to settle for a short sale and less than their owed mortgage balance for many homeowners some lenders refuse to completely forgive the unpaid portion of the debt. Some especially those holding the lower piggy-back loans as well as outstanding Home Equity Credit Lines have required an IOU from the seller – usually a higher-rate unsecured repayment agreement – to cover at least of the loan balance not collected when the distressed property sells.
According to reporter Ruth Simon in her story in the April 30 Edition of The Wall Street Journal one lender Washington Mutual began to pursue one Los Angeles CA home seller for the $21000-plus balance due on her piggy-back mortgage. They later settled for only $4000 of the debt.
Another FL homeseller after completing a short sale received a Notice of Deficiency from their lender who threatened to pursue the borrower since moved on in court for the short loan balance.
Of course the lenders hold a different point of view. Bank of America for example on of the largest mortgage lenders in the U.S. often attempts a promissory note for short balances "in the interest of protecting their shareholders and investors from losses."
Most are more likely to more vigorously pursue borrowers who aren’t necessarily suffering from financial hardship – they just used bad judgment in taking out too much debt against their property for personal reasons. Ironically much of this "discretionary debt" was aggressively solicited by reputable banks just a couple of years ago!
Generally however banks will review an individual borrower’s ability to repay on a promissory note – his job status other asset balance and other personal and financial information – before electing the deficiency option.
Many states regulate how strongly lenders can pursue those encountering deficiencies when they sell their homes.
In the end however electing Short Sale does not necessarily close up all loose ends neatly!
DEAN MOSS & DEAN’S TEAM CHICAGO
