Deficiency Judgments & Mortgage Relief Act
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?
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.
"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??
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.