“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?”

 ..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

The solution:

One of the major concerns that homeowners have when going through a short sale, foreclosure or even a BK 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 do this!  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. 

Bad advisor:  “If you can’t get the lender to waive the difference in a short sale or deed-in-lieu of foreclosure, just have the lender foreclose on your property.  In a non-judicial foreclosure, the lender won’t be able to pursue you for the difference.  Although they may report a foreclosure on your credit report, at least you’ll be able to walk away owing nothing to your lender.” 

Friends, this is simply not true!

Click this link:  https://www.courts.wa.gov/content/Briefs/A08/798753%20sarich%20respondent.pdf

The above link leads to an actual case (Sarich Vs. Beal) which took place in the WA State Court of Appeals in 2007.  This case specifically addresses the junior lienholder’s ability to pursue a deficiency judgement in a non judicial foreclosure.  Read the document and never again consider letting your property go into foreclosure.

In summary, it was decided that junior lienholders (2nd purchase loan, HELOC, etc.) can pursue you for a deficiency at foreclosure, even in a non judicial foreclosure proceeding.

Keep in mind that exemptions exist.  You may want to ask an attorney or a local HUD counselor what the statutes of limitations with respect to mortgage deficiencies are in your state.

However, just because your property enters ”non judicial foreclosure,” does not automatically mean that the junior lienholders are stripped of their rights to pursue the deficiency.  Keep this in mind before considering allowing your property to go into foreclosure. 

Until next time,

Kevin

My answer to them is, “get the facts and trust your instincts.”

Here are the facts:

Effects of Short Sale on your Credit Report:

• 200-300 point reduction on your FICO score, depending on the borrower.  I have heard of a 100 point reduction, but this should be very uncommon.
• Inability to obtain a mortgage for at least 24 months.

Effects of late payments on Credit Report:

• 30-60 day late payments, if considered an “isolated occurence” (you do not have 30-60 day late payments on multiple accounts), does not cause long term damage to your credit. 
• 90-120+ day late payments, however, do drop your credit score for the long haul (around 7 years).

Effects of Collections (post Short Sale Deficiencies) & Debt Settlement

• Your score from suffer with both, except with debt settlement, you’ll eventually repay your debt and thus helping to rebuild your credit score
• Do not simply leave your debt hanging with collections in hopes that they will charge off the loan.  They will continue to report that you are in default of “installment payments,” etc.  They can do this for years.  It is better to settle your debt and move on.  You especially do not want additional 90 day late payments reported as your credit score at that point will drop significantly. 

Here is my opinion:

Many homeowners end up spending all of their savings and living expenses on their mortgage payments, in the name of “protecting their credit.”  Some are even borrowing money (using lines of credit) to pay back their mortgage.  Little do they know that they are probably not accomplishing what they think they are accomplishing by paying their payments.  Moreover, mortgages are not designed to replace your groceries or gas in your vehicle, and if that is the case, the homeowner either needs to get their loan modified or simply let go of the property (given their situation isn’t a consequence of some unnecessarily large personal expenses, ie. gambling).  The mortgage is not right for them. 

Homeowners must ask themselves, then, is it really worth paying their mortgage if you are already 90+ days late to preserve their credit?  How about if you are current, based on the facts, do you have some wiggle room to reserve money to pay down other expenses? Aren’t you simply paying your banks rent money until you close your short sale?  Are you supposed to be neglecting your daily necessities just to pay your mortgage?  As far as loan modifications, did you know that late payments can be wrapped around the mortgage balance once you start your new payment plan?

Ask yourself, what could you do with a couple months worth of mortgage payments?

I’ve got some answers. 

1.  Pay off your loan mod fees (although our short sale negotiators are paid by the lender, unfortunately loan modifications do not work that way)

2.  Reserve money to pay your debt negotiation specialist who can help negotiate your post short sale deficiencies (becoming much more common), consolidate all of your other unsecured debts (credit cards, medical bill, small loans etc) and repair your credit

3.  Spend it on daily necessities.  Do not sacrifice meals to pay your mortgage because that mortgage (as is) is not right for you. 

Is it smart to spend money on money that has clearly no return on investment?

Is it smart to save money in order to save more money in the long run?

Should you keep paying your mortgage payments?

The answer:  Get the facts and trust your instincts.

It’s incredible..borrowers with bad credit and reduced incomes are obtaining BETTER MORTGAGES though MODIFYING THEM then even the PERFECT BORROWER.

BELOW are examples of what our experts have been able to do for our clients with respect to their loan modifications.

Case #1

This client went from 11.25% to 5.625% and saved $1082 a month, making this deal a shorter break even than any refinance could have done.

Case #2

This client came to us 18 days prior to the sale of his home. We worked with his lenders to save his house and modify his loan from 11.25% to 4.875%, saving him almost $2,000 a month!

Case #3

This client went from being 4 months behind at 7% to being current with a 5 year ARM, saving more than $1,700/month.

Case #4

This client went from being 2 months behind at 10.25% to being current at 4.85%, saving her more than $1,300 a month.

Case #5

This client went from being 11 months behind after her ARM adjusted to 10.875%, to being current with a new 2 year ARM at 3.875%. Her monthly mortgage payments are now a third of the original amount.

Case #6

This client fell behind on mortgage payments on a house he has lived in for 19 years. We worked with his lenders to lower his rate from 8.5% to 1.75% for five years, saving him over $1,700 a month.

Case #7

This client saved $773 a month and his lenders brought him current on his property taxes.

Case #8

This clients’ loan was modified from a 40 year fixed 10% loan to a 10 year interest-only loan starting at 3.625%. The clients saved over $2,000 a month from modifying this loan!

Would you like more details on these success stories?  If you are seeking similar results with your mortgage, I highly recommend contacting our experts to discuss your loan modification.

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. 

Here’s what happened:  We pushed and pulled until Chase agreed to withdraw all security interests and forgive any deficiency balances from the short sale (of course, for a small $3000 payment which in this case was paid for by the 1st lienholder).  We had them put this in writing.   

Even after agreeing to these terms, Chase still managed to sell their UNCOLLECTABLE debt to a debt collections company.  The debt collections company then proceeded to send a letter to one of my clients stating that a deficiency balance was owned the property, EVEN WHEN THEY AGREED IN WRITING TO FORGIVE THE DEFICIENCY BALANCE IN RETURN FOR A $3000 PAY OFF, WHICH WAS PAID AT CLOSING.

If the client were to some how lose connection with me, it is possible that the client may have arranged a payment plan with the debt collections company.  The client may have been under the impression that the company was “official” and that due to the “serious and professional” appearance of the letter, that the deficiency was still owed in full. 

Whether you are an agent or a homeowner, exercise discretion and filter all information with a short sale professional. We’ve seen and heard it all, so don’t allow these things to bother you. Rather, take action and call for help.

Be Strong and God Bless

Kevin

 

*NEW UPDATE - CHECK OUT SOME OF OUR LOAN MOD SUCCESS STORIES*

It’s been almost a year since my last post regarding loan modifications.  Get ready for a new perspective. 

In the last 11 months, I’ve realized that many, many homeowners out there simply do not have the capacity to negotiate their own loan modifications.  Here is why:

1.  They do not find HUD agencies helpful (not to say that they aren’t, but many homeowners have had this complaint)

2.  They are under too much stress and end up arguing with HUD or loss mitigation (thus ruining their chances of successfully negotiating a loan mod)

3.  They do not have the time to negotiate their own mods and end up going back and forth with lenders for many months.

Many of these homeowners end up turning to short sale, only to realize a couple days before the sale that they could have qualified for a loan modification.  Better yet, they may have been qualified for rates better than what was originally offered. 

One thing homeowners must realize is that lenders are NOT NEGOTIATING IN YOUR BEST INTEREST.  IT IS NOT IN THE LENDERS INTEREST TO GIVE YOU THE BEST TERMS FOR YOUR MODIFICATION, BUT RATHER, THEY WILL PROBABLY BEGIN WITH THE WORST.

Moreover, lenders will do the following to “encourage” (scare) homeowners into coughing up as much money as possible:

1.  Requiring the homeowner to pay their arrears in full before pursuing a loan mod (this is not a requirement for most lenders and is often a flat out lie)

2.  Offering very short term loan modifications (often they are just forbearance agreements)

3.  “Hard balling” in their communication with the homeowner (being unresponsive or evasive).

After seeing countless complaints, failed loan mods (even those that were negotiated by ATTORNEYS) & other horror stories with seller-negotiated loan modifications, I decided to search for a SOLUTION. 

I spent many months carrying out my due diligence in search of legitimate, for profit loan modification companies.  I contacted the Department of Financial Institution and even spoke with Cindy Fazio (DFI Staff Attorney) regarding their opinion on certain loan modification practices (The Department of Financial Institution is the very institution that regulates what for-profit loan modification companies can and cannot do in Washington State).  I studied the interpretive statement released by the DFI addressing everything from how much a loan modification company can charge up front to how they are to bill for their services and what those services must entail.  I found that the DFI too has found the legitimate demand for for-profit loan modification companies and that I wasn`t alone in my struggle with how to help these kinds of homeowners.  Our very own DFI understands this need! 

After months of researching, interviewing and investigating different companies, I finally found a mortgage company with a loan modification division that can do the job.  They now process all loan modifications brought in by Short Sail Solutions.   Here is why I trust them with my clients:

1.  Their pricing is based directly off DFI recommendations, in other words, they charge whatever price that was recommended by the Director & Staff Attorney of the Department of Financial Institutions. 

2.  They have a powerful track record of successful loan modifications with virtually no consumer complaints.

3.  They are all licensed mortgage officers (DFI requirement)

4.  Should a homeowner decided not to move forward with a loan modification prior to negotiations, they will return the upfront fee and retain only a $75 research fee.  The upfront fee is deposited in a trust account, to be released only upon completion of the phase.  This is important, since loan mod scam artists will often collect an upfront fee and simply run away with it. 

Here is a link to the DFI interpretive statement that I am referring to:

http://www.dfi.wa.gov/CS/interpretive_statements/mortgage/IS-2009-01.pdf

If you are not sure whether a short sale is right for you and would keep your home if the mortgage was more affordable, it is absolutely imperative that you first explore the loan modification route.  Do not short sell your home if it`s not in your best interest!  A loan modification will not damage your credit, unlike short sales.  It is extremely important to make sure that you`ve eliminated all other options before pursuing the short sale. 

KEEP IN MIND THAT A SOLID FOR PROFIT LOAN MODIFICATION CAN NEGOTIATE INTEREST RATE REDUCTIONS FOR THE ENTIRE LIFE OF THE LOAN.  Loan modifications should NOT ALWAYS BE SHORT TERM.  Our partners have done everything from 5 year arms at an extremely low rate (rates do not revert back to original rate, but according to LIBOR) to 30 year fixed. 

Click this link to obtain immediate, professional consultation regarding your loan mod.  Make sure you read the disclaimer; Homeowners can often figure out whether they are candidates for a loan modification based on the disclaimer alone. 

If you are an agent, I highly recommend having your homeowners pre-screen for a loan modification before pursuing a short sale (that is, if the homeowner has expressed interest in keeping their home).  It is a grand waste of time for everybody involved if the homeowner is qualified for a loan modification and ends up realizing that only a few days before the closing date on your short sale.

Take advantage of the resources around you and do something about your situation.  Continuing to miss payments without a plan of attack is a perfect recipe for a foreclosure.  If you do not have the time, resources and the general capacity to negotiate your own loan modifications, then work with professionals who can.  It is never good to simply allow your property to go into foreclosure. 

Again, click this link for immediate assistance regarding your loan modification.

Thus concludes my take on for profit loan modifications.    

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.

#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.  There are experienced debt negotiation specialists who 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