The question has come up on whether lenders who short sale can pursue deficiency judgments since the passage of the Mortgage Relief Act. As I see it, the Act only suspends the issuance of 1099s for forgiven debt for three yearts...and mentions nothing of banks using other legal remedies, such as deficiency judgments.
Can any of you experts in short sales give me your thoughts, opinions or experiences on this?
The operative phrase in "The Act" is "qualified acquisition indebtedness" which boils out to acquisition financing for a primary residence.... and doesn't include post purchase seconds or HELOC unless the proceeds were used to substantially rehabilitate the dwelling.
If the lender doesn't forgive the debt... but holds the seller responsible, there is no forgiveness.
You are speaking of two seperate issues unrelated to eachother. In regards to the mortgage relief act, SSP is absolutely correct. It is noted however, that in cases of insolvency, tax liablilities can be eliminated regardless and is most often applicable in a foreclosure situation. A good real estate cpa can help with that.
Concerning deficiency judgments, legislation enacted during the Depression still restricts the availability of deficiency judgments in several states. In somejurisdictions, deficiency judgments are proscribed in certain situations, while in other states, they are limited to the amount by which the debt exceeds the fair market value of the property. Check with your state.
just to ad another $.02,
as a condition of short sale approval, the lender can demand anything.
I've had several where lenders agree to release the mortgage, but require, as a condition of short sale, the sellers acknowledge the remaining debt, sign 'soft notes' or offer other collateral.
They are unwaivering.
Insofar as the insolvency exemption from 1099-C income, the extent of exemption is proportionate and limited to the amount of insolvency.
[ Edited by TheShortSalePro on Date 02/12/2008 ]
"by which the debt exceeds the fair market value of the property. " What does this mean?
What if the fair market value is $100,000 and the total payoff was $125,000 ???
So you would want to document a high fair market value? Say pull some comps to show FMV is really $115,000??
Frankly, "fair market value" is going to be what the lender receives for the property, although if it isn't sold at auction or as an REO you might be able to argue in court that the lender sold it below market.
Chris
A secured creditor may prove the fair market value of collateral in a number of ways. For example, appraisals, stipulations, market conditions, subsequent sales, and testimony of the purchaser.
You can dispute in court the validity of the claim. The burden of proof is on the cooperative.
Side note: If your documentation and negotiations are sound then their won't be a difficiency judgement.
Jackbenimble - "Side note: If your documentation and negotiations are sound then their won't be a difficiency judgement.'
Are you talking about Short Sell negotiations? Just do not understand how you can prevent a deficiency judgement.
Very rarely will a lender pursue a difficiency judgment unless they have reason to believe they can collect. In the case of a sfr foreclosure the chances of them actually getting anything from a borrower is slim to none and they are fully aware of this.
We include this agreement to satisfy in full the debt in our escrow intructions and yes, it is signed by the funding/closing rep.
Now a lender may ask that they sign a promissary note, or unsecured note etc.. as part of their investors requirements however, when push comes to shove I have NEVER lost a deal because the homeowner was not able to sign.