It’s 2010.  If you’re in the market to buy, you better be in the market to invest because a single wrong purchase (yes, even in a “down economy”) could very well turn YOU into another distressed seller in the next 5 years.  Imagine being forced to short sell or foreclose a property that you purchased in a down economy.  That is a very scary notion and I do not wish these circumstances on anyone.    

As a Washington based short sale expert, I have seen many, many Seattle area homeowners come to me having to short sell claiming their buyers agents had “duped them” into purchasing properties at prices that are now substantially above market value. 

So who is to blame?  The lender?  The buyer?  The agent?  In my opinion, everyone is to blame as each of these parties play a vital role in the buying process.  Let’s discuss exactly what happens in a bad purchase.

Let’s start with the lender:

You need to work with a lender that doesn’t bend the rules, period.  You know why?   Consider this example.  When a crooked buyers agent & lender work together, the buyer will convince you that the property is worth $300,000 to get the deal done (when it may only be worth $260,000), and the lender will step right in with a twisted appraisal to “confirm” that the property is indeed worth $300,000 to you and the official underwriter who approves the loan.  Now that everyone is convinced the property is worth $300,000, you obtain the loan, close the transaction and now you are upside down on your mortgage.  This happens, folks, so make sure that you are working with an ethical lender who knows what they are doing. 

In addition, many lenders out there will get buyers into loans that they cannot afford, by twisting around financial information to convince the underwriter that you can afford the property when you simply cannot.  Since most buyers are inexperienced, they will agree to these terms since they’ve fixed their eyes on that property and are perhaps emotionally involved in the transaction.  A professional, ethical lender will see past this and make sure you do not set yourself up for failure.

The benefit of working with an experienced, ethical lender is that you’ll be able to get a “2nd opinion” on the value of the home when the lender orders the appraisal.  If both the bank and your buying agent believes your property to be worth X amount, then it probably is (given that both the agent & lender are ethical people), and you should have peace about moving forward with your transaction.  If there is a large discrepancy, then back off and reconsider the purchase. 

The Agent:

Agents work on commissions.  If you understand this concept well enough, you’ll know not to work with agents who appear to be greedy, impatient & pushy as those are signs of a person just trying to make a sale.

A solid agent gives you the freedom to look for properties, yet will give you proper guidance on the ones that you are interested in.  They will give you access to the very listings that they themselves have access to, unlike some agents.  Did you know that some agents will sift through properties and only send you the ones they believe will close easily and as quickly as possible?  These kinds of agents look for such things as high commission rates, “overstocked” condo complexes & non-distressed properties (short sales and REOs) in order to avoid having to negotiate or bid.  Avoid these agents like the plague.  They know nothing about investing in real estate.

Lastly, a solid agent will not be a “yes man or yes woman.”  They are not going to sit there and agree with 100% of the things you say, because unless you are more experienced in the business then they are (if that’s the case then, well, run), they’re going to naturally lead the transaction and not the other way around.  Work with an agent who can kindly disagree, as that is a sign of someone who is not afraid of losing commissions, which is a good thing.

Buyer:

The fact that you are reading this article right now tells me that you understand your responsibility as a buyer, which is to carry out your own due diligence.  After all is said and done, you’re going to be the one purchasing the property, so you need to remember that you, my friend, are solely responsible for any properties that you purchase.  With that said, I’m going to answer the question of the day for you.

How do I Buy Seattle Area Homes at a Discount?

The answer is simple.  Work with an experienced Discount Property Expert.  There are aspects of purchasing discount properties that would take me pages and pages to explain.  Why not simplify the process and work with someone who has accomplished successful purchases on behalf of clients countless times over?

When it comes to buying discount properties, bothing beats partnering with someone with years and years of experience in this particular field.  Would you rather entrust your car to a college student or a veteran mechanic?  In the same way, entrust your property purchase with an expert and you’ll come out safe, successful and with no regrets. 

Click here to get in touch with a Discount Property Expert now

When seeking a Seattle Bankruptcy Attorney, it is absolutely crucial that you use a “qualifying standard” prior to hiring that attorney, or you could find yourself in a lot of trouble and perhaps even in deeper debt then you were before.

Here are a few key points to consider when seeking a qualified bankruptcy attorney:

How do they rank on the LexisNexis Martindale-Hubbell Ratings?

If you’re seeking to compare lawyers in terms of level of their experience, ethical standards, legal knowledge and overall capacity for excellence, you’re in luck, because the work has already been done for you. The LexisNexis Martindale-Hubbell Peer Review Ratings is a 3rd party ranking system established by LexisNexis & Martindale-Hubbell, two of the largest legal firm servicing companies on this planet, with active profiles of over a million lawyers.

There are only three ranks available, AV attorneys, BV attorneys and Rated attorneys.

An AV rating is designated for attorneys with only the highest level of achievement & experience.  An attorney with an AV rating is typically top-tier, the type of attorney that is highly respected among other attorneys, boasting an extremely vast list of satisfied clients & partners.

A BV rating is designated for attorneys with some level of experience and is a respected mark of achievement.  While it falls short of an AV rating, BV rated attorneys are still very qualified for the job.

When an attorney is simply Rated without an AV or BV rank, this shows that they do stand out from the crowd in terms of reputation & ethical standing.  While this ranking falls short of both the AV & BV ratings, attorneys that are rated with LexisNexis Martindale-Hubbell still remain among the finest of attorneys.

So when seeking an attorney, which ranking should you be searching for?  You tell me.  Onto the next point:

Is Bankruptcy in your Best Interest?

More often then not, homeowners will rush into bankruptcy without considering alternative options such as debt settlement (negotiating with their creditors).  Bankruptcy attorneys profit from submitting the paperwork and representing you in court, so find an attorney who is willing to give you general counsel for little to no cost (this is typically not possible unless you are working with a Pre Paid Legal attorney).  You need to make sure that if you move forward with bankruptcy, that you’ve explored every other option and have determined that it is indeed in your best interest.

How Much is the Attorney Charging you for General Legal Counsel?

In light of Pre Paid Legal (see above section), there really is no reason why you should pay any attorney $200-300 an hour for general legal consultation.  It should you cost you no more then $16 a month for unlimited consultation, so don’t trap yourself into an $800 bill for having a couple conversations over coffee with an attorney.

How Many Years of Experience does your Attorney Actually Have?

I have, in the past, worked with attorneys without verifying their track records, wrongfully assuming that just because an attorney is licensed and/or works with a reputable firm, that they have enough experience to work with my clients.  This is far from the truth.

When seeking an attorney, one way of gauging their level of experience is simply to find out how long they have been in the business.  I typically like to work with attorneys with 15-25 years in this business.  Anything less does not necessarily mean that they can’t get the job done, but I have noticed that the longer an attorney has worked in a particular field, the easier it is to figure out how competent they will be for the task at hand.

Where Can I find an Experienced, AV ranked Bankrtupcy Attorney?

Seattle Short Sale Blog endorses the use of Washington’s Pre Paid Legal Firm for general counsel and discount bankruptcy services.  The founder of this firm is an AV ranked attorney with 25+ years of experience in law.   I recommend using Pre Paid Legal to obtain general legal counsel and if it truly is in your best interest to file for bankruptcy, to work with their designated Bankruptcy Attorneys for the actual filing process.

In summary, finding a qualified bankruptcy lawyer/attorney can be an easy process as long as you abide by the golden rule:  “you know a tree by its fruits.”  Work with someone with a proven track record and you should see great results.

REO’s

1.  Bidding wars.  Some listing agents love conducting bidding wars and other’s don’t.  Bidding wars result in a ton of wasted time and more often then not, causes the price to shoot up past a desirable range.  The key to overcoming this obstacle is to have “insider information” on “friendly REO agents” who will deliver your offer to the lender as soon as they recieve it. 

2.  Prices.  Again, bidding wars will drive prices up.  Emotional / obsessive buyers will find themselves bidding on properties at prices that are above and beyond market value.  Don’t get caught up in the moment and certainly do not attempt to bid with one of those kind of buyers.  You are here for a discount, not to see who wins.

Short Sales

1.  They could take very long to close.  Short sales take anywhere from 2 weeks to 2 years to close, depending on how far the process is into negotiations.  The key to avoiding wasting your time on a short sale is to make sure that the negotiator has tons of experience under their belt. 

2.  Prices.  More often then not, banks want top dollar.  Again, the key is to make sure that the negotiator is experienced enough to politely but firmly, tell the bank to “stop dreaming.”

Foreclosures

1.  The fear of the “unknown.”  When purchasing foreclosures, one may never have the opportunity to inspect the property prior to ownership.  This is scary, since properties may have structural defects that may go unnoticed until after you make your purchase.  The key to avoiding this is to focus on “failed short sales” that have previously been on the market and/or work with an agent who is aggressive enough to inspect the property on their own.

2.  You need cash.  At auction, you need to buy properties with cash, which most buyers simply do not have.  Getting around this is easy, just borrow hardmoney under professional supervision.  Just make sure that the property you are buying is a quality property at a true discount, and that you can get out of your high interest, hard money loan via refinancing.

In summary, it’s not a matter where you look for discount Seattle Real Estate For Sale but who you’re looking with.  Nowadays, you (as a homebuyer) have as much access to property listing websites like NWMLS, Redfin, Trulia, etc as realtors do.  The big difference, however, is that you probably don’t have enough experience to make sure that you are buying a quality property at a true discount that is bound to close.

I personally work with a team of short sale, REO & foreclosure buying experts who understand how to overcome the above obstacles and get you REAL deals on properties.  So when searching for Seattle Real Estate For Sale, make sure you’ve got an expert by your side, because that, my friend, is how you get yourself a deal of a lifetime. 

You wouldn’t want a realtor who has only closed 1-2 deals in their entire careers to represent you in a transaction, right?  Well, searching for discount properties on your own (given that you are a first time or relatively new home buyer) is essentially the same thing.  Your level of experience WILL determine your outcome.

Be smart.  Use an expert and get yourself a real deal on a Discount Washington MLS Listings

Kevin

You’re in need of real help, real fast.

So guess what else you’ll find in the mail?

1.  Letters from people claiming that you can walk away by quit-claiming your property to them.  SCAM.

2.  Letters from people claiming that they will delete your mortgage if you give them 50% ownership of your property.  SCAM.

3.  Government style letters claiming to help you obtain ”government loan modifications and/or short sale assistance.”  SOLICITATION FOR BUSINESS.

4.  Investors claiming that they’ll “buy your house” in 7 days.  QUITE POSSIBLY A SCAM.

So you go off searching for “Seattle Foreclosure Help” on Google and you again run into people promising to buy your property from you or “save your home and prevent foreclosure.”

Now not every single company promising to save you from foreclosure is attempting to scam you, but you must keep in mind the key differences between a company that’s going to actually help you vs. a company that’s out there to rip you off.

And you know what that is?

It’s a track record.

Has the company closed at least 75-100 short sales?  What is their average success rate?  Of all of the loan modifications that they’ve negotiated, how many of them have been permanent? Are the companies promising to repair your credit comprised of actual attorneys experienced in litigation or random people off of the streets?

These are questions that you absolutely must be able to answer when seeking to avoid being another Seattle foreclosure statistic.

As the owner of Short Sail Solutions (a nationwide network of short sale experts), I have spent the last few years partnering with the best companies out there with the strongest track records, who are now ready and available to help you avoid foreclosure and walk away from this season in life with as little damage as possible.

We have experts all over the nation designated for the following areas of interest:  Short Sales, Loan Modifications, Credit Repair, Debt Settlement & Legal Counsel.

If you need help, simply scroll to the top of this website and click the tab that best addresses your need.

One free phone call with an expert may quite possibly save you from foreclosure.

And remember, when something sounds to good to be true, it probably is.

There is a reason why the Attorney General wrote me a letter commending my business.  When homeowners are in pre-foreclosure, the last thing they need is another person trying to take advantage of their distressed situation.  Yes it’s important to get help, but it’s even more important to get it from the right people.

Be wise,

Kevin Kim

I also talk about this in my email reports, so sign up NOW by adding your name & email in the form located on the right side of this website.

Now one thing that I am not going to do is give you legal advice on this blog.  If you want to hire legal advice for more personalized consultation, first of all, do not hire an attorney for $300 an hour.  Use Pre Paid Legal, which gives you unlimited consultation with a top tier attorney in your area for a measly $16 a month.  I use this service myself.  With short sales, rarely will you need physical attorney representation.  Rather, you need consultation, and that comes a lot cheaper.

Plus, Pre Paid Legal attorneys WILL write letters & make phone calls for you, if it is necessary to do so. 

Follow this link to learn more about Pre Paid Legal

Before you even consider a short sale, first ask yourself, do you want to keep the property?  We’re not in the business of forcing people to do short sales if they’re desire is to keep their property.  Have you considered a loan modification? 

If you really want to keep your home, there are plenty of other options to consider.  Did you know that it is possible to file for BK, discharge a large 2nd and modify your first mortgage which would instantly “recreate” equity in your property while leaving you with a significantly lower payments AND a lower mortgage balance then you originally had on the property?  Ask a loan mod expert about this option

Now, in order to negotiate & waive a short sale deficiency, you must have the basic following:

1.  A professional negotiator

2.  A complete short sale package with an offer

3.  Updated financials

If you do not have these basic things, you’re going to run into small, administrative issues that’s going to keep you from talking about what’s most important in a short sale (ie. the deficiency).

Now let’s talk about a couple things you need to understand before attempting to negotiate & waive a short sale deficiency balance.

First, how many mortgages do you have?  If you have only one and you live in a non-judicial foreclosure state, you have the most leverage for negotiating your deficiency balance.  This is because if you allow the property to go into foreclosure, the property will sell for 60 cents on the dollar and the lender will lose all deficiency rights.  Thus, it is in the lender’s interest to simply accept the short sale as payment in full.  Alternatively, if you have a 2nd mortgage, you have less leverage,  since the 2nd lienholder can usually pursue you for the deficiency no matter what.

Now, let’s talk about a couple techniques that I’ve used to personally negotiate 100% waiver of deficiencies or a settlement for less than what is owed:

1.  Financial hardship.  If you are in true financial hardship, you must make this absolutely clear to the lender.  You must convince the lender that it is not worth pursuing you, since you have no assets, and that foreclosure means “little” to you if they are not willing to budge (this will surely scare the 1st, while it might not have so much effect on the 2nd)

2.  Threaten bankruptcy.  If you threaten bankruptcy, (esp. if you send a letter or a BK schedule), lenders will work with you.  In the event of bankruptcy, lenders are at the mercy of the bankruptcy trustee and how they decide to approve the terms of the BK.  If you are in financial hardship with much debt, you will probably be qualified to discharge that debt.  Threaten bankruptcy.  You can get Pre Paid Legal attorneys to write letters and make phones calls to your lender if you want to add serious firepower to your negotiations. 

3.  Have the buyer raise the purchase price.  This is why it is absolutely important that you do not try and haggle buyers for the highest priced offer when you intial do the short sale.  This will only harm you.  Most homeowners are under the impression that the higher the offer, the lesser likelihood that lenders will release the deficiency.  This is not true.  On the contrary, lenders will be more likely to release the deficiency if the purchase price is raised AFTER the lenders are intially given a much lower offer.   

My lender isn’t budging and is not waiving the “deficiency” language and/or is requiring me to sign a promissory note!

In the event that you are running into this issue, it is likely that your missing one of the above steps.  However, I understand that sometimes the lenders will simply not budge.

My opinion (not legal recommendation), is that you release the lien anyways and follow through with the short sale to pay off the 1st (in most cases, a short sale will allow you to at least get the 1st off of your back).  Any remaining debt with the 1st or 2nd, any promissory note or the “right” to pursue a deficiency is nothing more than unsecured debt (like a credit card) for the lender (which they hate), and if you default on that, then the lender is left with the choice of either suing you for the debt, to settle for less than owed or to simply write the debt  off and issue a 1099-c.  Releasing the debt as a tax write-off, by the way, is quite rewarding to the lender and in many cases, the lender will simply write off the debt. 

Once you corner your lender into this situation, it is in your best interest to repeat the above steps (show evidence of hardship, threaten bankruptcy).  Lenders, their creditors or their attorney firms will most likely be open to look at different options, especially if you threaten bankruptcy. 

If you have some cash or can borrow some cash, you can also do “debt settlement” with your lender (as well as with all of your other unsecured debt) and try to settle for 20%-40% of your debt. 

Can’t I just allow my property to go into foreclosure?  Don’t they lose their deficiency rights if I do this?

No.  If you live in a judicial foreclosure state, the lender can still pursue you for the deficiency.  If you live in a non-judicial foreclosure state, the non-foreclosing lender (usually the 2nd) can still pursue you for the deficiency.

OK, so what if I get the deficiency waived or the lender decides to release the debt as a “tax write off”?  Won’t I still owe taxes on the deficiency?

Yes, unless you are qualified for the Mortgage Forgivess Debt Relief Act of 2007.

Now with everything that I’ve mentioned, keep in mind that a professional short sale negotiator is an absolute necessity when dealing with a short sale.  There a billion other things that can go wrong in a short sale, so make sure you hire representation. 

One last concern I want to address:  “My credit is important to me!  How do I improve my credit after a short sale?”

I’m sure you know by now that a short sale will damage your credit, including the 30/60/90 day late payments that show up on your payment history, although a short sale is not as damaging as a foreclosure. 

Well there’s no need to worry.  We’ve recently partned with Lexington Law, an attorney firm that specializes in removing negative items from credit report, NOT based on accuracy (since most negative items are accurate), but on OTHER factors that are just as important. 

Follow this link and ask a Lexington Paralegal about removing short sales, late payments and even foreclosures from your credit report.

I hope that by now, I’ve provided you with enough resources & information necessary to close your short sale, walk away from your property and minimize the damage as much as humanly possible.  You may want to bookmark this blog post and keep it as reference for the future.

I truly wish you the best,

Kevin

“Does a short sale hurt your credit?”

“Short sales take more than 90 days, how will that affect my credit score?” 

“How long does a foreclosure stay on your credit?”

“How does a foreclosure affect a persons credit score?”

“How long does a bankruptcy stay on your credit report”

“Can credit repair actually remove foreclosures from credit reports?

 ..so on and so forth. 

Well, let me start off by saying that both a foreclosure and a short sale will impact your credit score.  The difference is that a foreclosure will be more damaging to your overall credit and will remain longer on your credit report than a short sale. 

Short Sale: 

• 200-300 reduction to your FICO score depending on the borrower. 
• Inability to obtain a standard mortgage for at least 24 months

Foreclosure

• 200-300 point reduction on your FICO score, depending on the borrower.  Yes, this is almost the same as a short sale.
• Remain on credit report for 7 years.  Inability to obtain a mortgage for at least 24 months.  Difficult to obtain a standard interest loan afterwards

Bankruptcy:

• Remains on credit report 7-10 years
• A very large ding on credit score, usually a few hundred points

The solution:

One of the major concerns that homeowners have when going through a short sale, foreclosure or even a bankruptcy are the consequences on their credit. 

However, what most homeowners do not know is that the FCRA (Fair Credit Reporting Act) requires certain steps to be made by creditors before reporting an item on a credit report, and if a creditor misses one or more of these steps (which they often do), the FCRA will not allow the item to appear on the credit report.  This includes unverifiable information, clerical errors, mistaken identities, etc. 

What this basically means is that you, as a homeowner, might be qualified to have your short sale, foreclosure, late payments (30/60/90 day lates) and sometimes even your BK removed from your credit report even if they are accurate.  This is not illegal!  In fact, it is actually the law that allows you to accomplish this, since the FCRA requires conditions beyond “accuracy” to be met by creditors when reporting a negative item on your credit report. 

If you are looking to purchase another home post-short sale or foreclosure, don’t fall for one of those high interest “foreclosure loans for bad credit” provided by hard money lenders who are looking to take advantage of your situation.  Rather, remove negative items using our lawyers, raise your FICO score and obtain a standard, low interest mortgage when purchasing your next house.   

Credit Repair & Deletion:

My job is to help people walk away from this season in life with as clean of a slate as possible.  With the help of one of our partner law firms, you can remove foreclosures from credit reports, as well as short sales and other negative items.  Deleting negative items on your credit is a sure fire way to help rebuild your credit after a short sale, foreclosure or even BK faster than you’ve ever thought possible.

—> Use this link to access the Credit Deletion section of this website and repair your credit today

When it comes to short sales and foreclosures, listen to the experts.  Don’t do what everybody else is doing, rather, take advantage of what’s out there and milk every opportunity you can find.  The reason why most homeowners are stuck having to short sale is because they ended up purchasing homes based on feelings or the opinions of a single realtor.  This time, choose differently.  Take advantage of our knowledge on the subject and you’ll be back running in no time.

Naturally, “mortgage debt cancellation” became a hot topic when short sale companies (including foreclosure prevention companies) all throughout the nation realized how well this “idea” attracted customers.  Many short sale negotiatiors will tell clients not to worry about the deficiency because the lenders “rarely ever pursue them.”

Well I’m here to tell you that though this may be true, sometimes the lender/PMI/3rd party collections agency will pursue the borrower for unpaid mortgage debt after the short sale.

You might be asking yourself, “so what on earth am I short selling for?  Might as well let my property go into foreclosure since my state is an Anti-Deficiency State.”  

Though it is true that some states do not allow lenders to pursue a deficiency judgement (ie. in a non judicial foreclosure), you must consider the non foreclosing lenders position.  Here in WA. State, a non foreclosing, junior lienholder (ie. your 2nd mortgage) can sue you for ”breach of contract,” even in a non judicial forclosure. 

Now if foreclosure isn’t an option, homeowners may consider filing for BK.  Filing for BK may be a good idea for some, but for others, a couple key factors must be considered:

1.  Repayment plan might be too high

2.  Opportunity cost of having no credit

3.  Short Sale might be “cheaper” in the long run

Now what do I mean by a short sale being “cheaper”?

Many homeowners, after hours of grueling research, consulting with attorneys, etc. will come to find out that a short sale is still the best option among the three that I have mentioned for a couple of reasons:

First, the risk of being sued at foreclosure is too high, since the deficient amount is maxed out and in the event of being sued, the homeowner will be at great risk, including liens against his/her assets, wage garnishment, etc.

Second, filing for BK eliminates the option to borrow money and/or the repayment plan is more costlier than a repayment plan that would be incurred in a short sale. 

One must conclude then that the point of a short sale is to:

1.  Generate the highest offer (to pay off the lienholders as much as possible and reduce the deficient balance).  This eliminates the validity of all of the “foreclosure prevention” companies out there seeking to flip your property for profit.  I will elaborate on this on another post. 

2.  Negotiate a reduction or elimination of the remaining unpaid mortgage debt

3.  Arrange the lowest repayment plan possible in the event that the mortgage debt cannot be cancelled. 

So finally, how do the real short sale experts deal with unpaid mortgage debt on behalf of the borrower?  We give banks the 1-2 Punch combination. 

Imagine you have a loss mitigator and one of our negotiatiors in a boxing ring.  The announcer yells, “let’s get ready to rumble!” and the fight begins.  The 1-2 Punch combination is how our negotiators end up knocking out the loss mitigators almost everytime.  It usually goes like this: 

*Feeling each other out:  We negotiate a short sale and aim for a full pay off or cancellation of debt.  Sometimes they will, sometimes they won’t. 

*First punch:  In the event that they won’t, we sell the property and remove the security / collateral on the note, rendering the note unsecured.  When you sell your property in a short sale, you essentially pull the rug from underneath the lender, because now the note is not secured by your property, or by anything from language on a contract.   So unless the lender sues you (which is expensive) they can’t really do much to collect on the unpaid mortgage balance.  We usually knock them out at this point and the homeowner ends up with a 1099 for the difference, of which there are exemptions available. 

*Second punch:  Should the lenders, the PMI or a collections agency try and pursue you for the unpaid mortgage debt, we swing them a final, knockout blow by negotiating yet another reduction to the balance with our debt settlement negotiators.  No institution likes to have non-performing, unsecured debt in their books and almost always will accept a reduction and have a cooperative borrower then to simply leave the debt “hanging.” 

This concludes our discussion regarding mortgage debt settlement, debt cancellation and our 1-2 Punch combination for reducing and ultimately eliminating your short sale deficiencies and unpaid mortgage debt.  May this information guide you into the right direction. 

There are tons of websites out there with so called “lists” of deficiency and anti-deficiency states that are either inaccurate or fail to explain the specifics on exactly how, where and when homeowners are sued for deficiency judgements.   

Available now are state by state foreclosure laws provided by one of our trusted colleagues.  He is an Attorney at Law.  Find out whether you live in a Deficiency or Anti-Deficiency State by navigating the site below.

State by State Foreclosure Laws

Everybody should watch this documentary to understand the dynamics of short sale, loan modification and debt negotiations.  This documentary outlines different types of fraud committed by lenders that have led millions and millions of homeowners into short sales, foreclosures and unmanageable debt.  

As a short sale expert who deals with clients everyday, trust me, I have seen and heard it all:  Homeowners crying on the phone when sharing their hardships, other clients even going as far as taking their own lives after losing all of their equity in their business.  People need to realize that a majority of the mortage fraud committed during the “peak” were not committed by homeowners or investors, but the actual lenders and/or their personnel.  No doc and stated income loans, lender-influenced appraisals, ARMs sold on speculated market appreciation, etc.  These were lenders, not the homeowners, who originated such bad loans. 

These lenders, my friends, are the primary reason why you’re struggling with a short sale.  This is precisely why you are having to deal with a loan modification. 

And now, rather than spending their bailout money on bailing out their customers with grossly over financed properties and terrible loans, lenders are now forcing homeowners to pay for these properties (in the form of deficiency payments and/or judgments) even when homeowner can’t afford it.  Thus, by using the old scare tactic and threatening to foreclose, even if homeowners and agents are doing their best in getting banks fair market value for their property, the bank’s “thank you letter” for your efforts happen to be nothing more than, in effect, “we are going to hunt you down for every last penny for this mortgage regardless of whether you can afford it or not.” 

How lenders are dealing with homeowners could be compared to a man teaching a child how to open a lemon stand, supplying the child with rotton lemons, then when the child is out of business, kicking the child while their on the ground in an attempt to steal the child’s wallet. 

So this is why I am in this business.  I am in this business to advocate for you, the consumer, and to fight back on your behalf.  My desire is to take that man, threaten to call the police, and force him to give back your wallet. 

It is amazing how unaware homeowners are when dealing with lenders.  Somehow, they are “duped” into believing that lenders are providing short sales and loan modifications at terms that are in the homeowners best interest, when in reality, they are almost always looking out for their own interest. 

Don’t let these lenders and creditors kick you while you’re down.  Have someone fight on your behalf.  Get help now.  We understand what lenders are willing/unwilling to do in these situations.  We know their hot buttons.  Don’t give these lenders your money, rather, save it.  You’ve earned it through hard work and thus we will fight as much as humanly possible to ensure that it is yours to keep. 

Don’t be “duped” into yet another “fast one” with the bank.  Get help now. 

Every homeowner who is looking to short sale their property should be asking the following question:  “On a short sale, will I have to pay the bank the difference between what I owe and the final sales price of my property?”  The answer to this is both yes and no.  Don’t worry, I’ll make it simple for you to understand.

*UPDATE 3/13/10 Feel free to visit my new blog post regarding how to negotiate & waive short sale deficiency balances*

#1:  Let’s define terms: 

Foreclosure Deficiency Judgment:  A deficiency judgment is a lien against the borrower whose foreclosure does not produce sufficient funds to pay the mortgage in full.  It is an actual judgment, that is, you are being sued.  Thus, the borrower is liable to pay the difference between what they owe and what it sells for on a short sale or in an auction.  The option to pursue the borrower is only available if the lender proceeds with a Judicial Foreclosure (basically, the lender sues you for the difference).  Keep in mind that in a Non-Judicial Foreclosure, the junior lienholder can still pursue a deficiency judgement in many states.  All of this can be determined based on original loan documents and/or the type of loan/lender. 

Short Sale Deficiencies as Unsecured Notes:  Short sale deficiencies are realized when the short sale does not produce sufficient funds to pay the mortgage in full.  Short sale deficiencies are typically:

a.  Waived in exchange for a pay off

b.  Accounted for via promissory note for the deficient balance or percentage of the balance

c.  Collected after the short sale as unsecured notes, that is, they will not be able to secure the lien against your other assets (since you’ve already sold the collateral property in a short sale) unless they actually sue you.  Again, unless the lender/PMI/collections agency sues you in court and actually files a “deficiency judgment” against you, the note shall remain unsecured.  For the most part, lenders will not sue their borrowers as it is more costly for them to do so then to keep in unsecured.  Lenders often “reserve the right to pursue the deficiency” in a short sale, but what typically ends up happening is that the unsecured note most likely ends up being substituted with a 1099 (tax on sale) for the deficient balance (which they will charge off), which most homeowners are exempt from (Mortgage Forgiveness Debt Relief Act of 2007). 

I Think I`ve Been Hit With an Invoice for the Deficiency/ I think I’ve Been Sued for a Deficiency Judgment:  No need to fret.  We can help significantly reduce and ultimately eliminate unsecured notes and deficiency judgments whether it was incurred via short sale or foreclosure. 

Promissory Note:  A promissory note is also an unsecured note and a contract between the lender and borrower where the borrower agrees to pay the difference (or a percentage of the difference) between the amount owed and the sales price of the property.  This is usually presented during a short sale and can only be enforced if the borrower agrees in writing.  These notes are also negotiable after the short sale. 

#2:  Let me explain why you are better off pursuing a short sale vs. a foreclosure. 

In Washington state, a majority of foreclosures will be non-judicial, meaning that the lender will not be able to pursue you, the borrower, for a deficiency judgment.  However, in other states, as well as some WA. based lenders (ie. BECU) do proceed with judicial foreclosures and borrowers may be liable to pay a deficiency judgment. 

The number one reason why we advocate pursuing a short sale vs. a foreclosure, is that a foreclosure (regardless of whether it is a non-judicial or judicial foreclosure), will prevent you from obtaining a mortgage for a minimum of 5 years, in addition to extensive damage to your credit, whereas a short sale will have far less damage to your credit in that most borrowers will be able to obtain a mortgage after 2 years of conducting a short sale.  Also, the deficiency (or tax consequences) in the event of foreclosure, if is collectable, will be significantly higher than in a short sale (since properties sell at extremely discounted prices at foreclosure auctions). 

The second reason why we advocate short sales is that promissory notes and deficiency judgments before and after the sale are, for the most part, negotiable.  In many cases, the deficiency owed can be negotiated to a percentage (ie. 10% of a Bank of America HELOC loan) or sometimes completely waived.  The lender may forgive the balance in exchange for a small pay off or an affordable payment arrangement with the borrower.  This largely depends on two factors: 1.  The strength of the negotiator 2.  Lender policy and type of loan.  Sometimes, it is even possible to have the buyer pay the difference!

Again, should the lender reserve the right to pursue a deficiency, at least you have a short sale on your credit report vs. a foreclosure.  Keep in mind that it is rare for the lender to actually pursue the deficiency and therefore the unsecured note will most likely be replaced with a 1099 issued by the IRS for the taxes owed on the sale.  You will want to explore the Mortgage Forgiveness Debt Relief Act of 2007 to verify whether you are exempt from this tax. 

In addition, if the remaining deficiency is pursued by the lender, the deficient amount can, even after the short sale, be negotiated down further with the assistance of an experienced debt negotiations specialist.  Keep in mind, there are situations where the lender will absolutely not allow a short sale unless the homeowner signs a promissory note for the full amount of the difference.  We have recently discovered that BECU will not approve a majority of their short sales unless the homeowner signs a promissory note for the full amount (our team has, however, been able to negotiate these down to a fraction of the deficiency). 

In these situations, I strongly suggest hiring a professional short sale negotiator to aggressively negotiate the balance before the short sale as much as possible, then having a debt negotiation specialist pick up the tab after the short sale.  You will want to explore these options before considering to file for BK. 

#3:  Finally, let me answer this question in the simple terms:  “On a short sale, will I have to pay the bank the difference between what I owe and the final sales price of my property?” 

Yes:  As we discussed earlier, the lender may ask you to pay the difference in the form of a promissory note and will not allow a short sale unless a note for the full amount is signed by the borrower or the “right to reserve to pursue a deficiency” is outlined in a statement signed by you.  In these situations, again, it may be in your best interest to have your short sale negotiator bring down the balance as much as possible before the short sale, then to have a debt negotiation specialist negotiate the balance even further after the short sale (if the deficiency is actually pursued by the lender/pmi/collections agency).

No:  It is possible, in a short sale, to negotiate the deficiency owed down to a percentage that can be paid or to even waive the liability completely.  What this means is that, say, if you owe $500,000 to your lender but your property sells for $350,000, a strong negotiator may be able to get the lender to settle at $350,000 and not pursue the deficiency with the homeowner (in exchange for a pay off or sometimes a payment arrangement with the borrower).  That means the homeowner will be able to walk away from their short sale (although they may owe the IRS a tax for the difference, which most homeowners are eligible for exemption under the Mortgage Forgiveness Debt Relief Act of 2007).  A negotiator will accomplish this by demonstrating to the lender what their losses will be in the event that you, the borrower, allow the property to go into foreclosure or if you file for bankruptcy.  The negotiator will argue that it is in their best interest to proceed with the short sale, and will present all the market data, financial comparison sheet, etc. in order to make a strong case. 

Hopefully this answers many of your questions regarding deficiency judgments, unsecured notes, promissory notes and how they relate to short sales and foreclosures.  If you have any questions, just respond.  You WILL receive a prompt response.

Your friend,

Kevin