Homes Sarasota selling “short” (that is, bank approved short sales) might only appear to let the borrower off the hook, with some bank-approved short sales “tricking” borrowers into thinking they’re free and clear.
My short sale “expert” friends and I are noticing an alarming trend emerging from bank-approved short sales.
It appears not all “bank-approved short sales” are the same.
Turns out, many bank-approved short sales are nothing but thinly disguised lien releases NOT providing full payoff and satisfaction of the mortgage…as thought.
In other words, the “mortgage debt owner” is NOT releasing the borrower (that is, the seller) from the deficiency.
For example: If borrower’s mortgage obligation is $254,000 and the house sells for $123,500, the debt owner legally is keeping the borrower on the hook for $130,500.
What my colleagues and I are noticing is that the debt owners are not specifically agreeing to full pay-off and satisfaction of the debt.
When pressed by a borrower’s attorney, the SMIs (i.e. secondary market investors) refuse to release the borrower from deficiency balance even though the SMI and servicer claim they will not pursue deficiency.
Pursuing the deficiency
From various attorneys, I have discovered the policy determining whether the servicing lender can and will pursue deficiency balance first starts with the servicing agreement between servicer and SMI (debt owner).
I’ve heard many attorneys claim they’re seeing servicing agreements with no clear deficiency policy, leaving the decision either with the SMI or the servicing lender or the servicing lender perhaps must consult with the SMI.
How to know when the borrower is in the clear
Legally, each state has laws called “Statutes of Limitations” or “Limitations on Actions,” preventing creditors from attempting collections for unlimited amount of time.
These laws place a time limit on collections, after which the creditor can no longer sue a debtor for a debt. Of course, statute of limitations depends on whether it’s a judgment or a delinquent (unpaid) debt.
To my real estate customers consulting with real estate attorneys, some attorneys are advising my customers not to close. Force the debt owner to state specifically (in writing) the approved short sale provides full payoff and satisfaction…and that no debt collector ever will pursue collections.
Other attorneys are advising clients to proceed with the sale, believing that if the debt owner or servicer is not demanding a lump sum payment (to be paid inside closing) or a Promissory Note for part of the deficiency, it is highly unlikely the debt owner will seek more. Indeed, if they did, the lender may face some legal trouble, for which they are fully aware.
It’s believed that if a mortgage debt owner is going to seek a deficiency, it most likely will occur within the first year. Each year, in January, the lenders must issue their 1099s. A 1099 is the form they use to report to the IRS the amount that has been forgiven in a short sale or foreclosure. So, if the borrowers receive a 1099 for the deficiency balance, the lender may be “estopped” thereafter from pursuing the debtors. The lender receives a tax benefit from the forgiveness, and the borrower may incur a taxable event as a result, so the lender may be estopped from further action. For most borrowers, that taxable event is not real, but only potential because the lender does not know if it is (a loss) or not.
Bottom Line: Before debt owners approve a short sale, they typically are demanding lump-sum payment and/or promissory note, if at all. Typically, we’re seeing borrowers with perceived ability to pay now or later LESS apt to get released from partial or full re-payment either now or later. In this case, many debt owners are forcing borrowers into bankruptcy.
Homes Sarasota selling short require (rather, DEMAND) an attorney for the borrower carefully review the short sale approval letters for full payoff and satisfaction. Wachovia and NCO Financial are two mortgage debt owners exposed for deceptive trade practices. Certainly, they’re not the only ones, as we’re seeing. What questions or comments do you have about avoiding foreclosure? Scroll down to leave me your comments. If you have a specific question, call me.
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