Short Sale Question_ HELP!

Updated on June 04, 2011
T.L. asks from Mesa, AZ
13 answers

Hi Everyone,
We are short selling our home. After layoffs and health problems we have no choice :(
there is good and bad news. The good news is; We already have a buyer. After paperwork and more paperwork...
we got approved! We still have to have our second approved though.

ARizona is a nonrecourse state, which means if you foreclose..they cannot come after you for the deficiency....

The bad news is; short sales are not foreclosures and they can/if they want come after you (6 years later)
Most morgage companies will explain in the contract that they will waive the deficiency.
OUr lender, which is smaller will NOT change their verbage, and could care less if we foreclose.
This is what they said: We will release the lien and report this as settled for less than amount owed. However, we are unable to implicitly or explicitly address the deficiency.
Our agent and myself have asked them numerous times to simply change it, and they won't.

For those of you who are familiar with this. Would you go ahead with this?
Do you think there will be a problem later? I don't want to regret this, as a short sale is much lighter on your credit vs a foreclosure. HELP!

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So What Happened?

BTWAY, our deficiency is only 20,000! They are holding up the contract for that amount and the loss mitigatior is
Corella Deville. She could Care LESS if we foeclose which costs twice as much rather than writing a short line of
non-liability!! She is mean, mean, mean.

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answers from Charlotte on


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answers from Minneapolis on

I would ask a lawyer. We too are going through a short sale and have lawyers handling the whole thing.

1 mom found this helpful


answers from Phoenix on

I am a realtor in AZ and handle short sales. I require all of my clients to speak with a real estate lawyer and tax advisor as we cannot give legal or tax advise. We pay the lawyer to negotiate with the bank if they wont change the verbage. The lawyer is sometimes able to get farther with the bank than we are. Have your realtor recommend a lawyer.

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answers from Phoenix on

I consulted with a lawyer and there are already precedents where they cannot win going after you at least when it is your primary residence.

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answers from Boston on

I think that there was a federal program put in place in April 2010 (HAFA - Home Affordable Foreclosure Alternative) to address issues like this and protect the sellers. Part of this law includes: "Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed)."

I believe that this "law" trumps local laws and that you will be fine, but I would consult with an experience RE attorney in your area. Someone familiar with short sales in your area will be able to let you know whether or not the verbiage is a problem. An atty may have more knowledge that your agent regarding how binding the fine print is.

And here is a link to a website in Arizona that has some info on HAFA:

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answers from Chicago on

Hi T.,

Here's a good site to ask this question:

(My husband's a realtor and he answers questions on trulia sometimes. I was going to have him read your post, but it's late and he's relaxing. But... realtors on trulia might be able to give you some helpful advice.

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answers from Phoenix on

I would say it depends on the amount of the deficiency. We were in the same boat....had a buyer, approval letter, servicing company (not a big bank) etc., & they too wouldn't change any verbiage to waive their rights to pursue deficiency. Because our house was selling for 175,000 less than owed, we could not take the chance on them pursuing this amount up to 6 yrs. down the road, so we had to let them foreclose. Best of luck to you in this big decision!

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answers from Chicago on

Nope, I would not proceed until I got it in writing that they will not come after me for the deficiency. Because they will sell that "deficiency" note to a collections agency and come after you for it while you are trying to re-establish your life. I did a short sale a year ago (with both 1st & 2nd mortgage) and got a waiver on both. I also found out through the process that the 2nd mortgage wanted 10% of balance to settle and then they could write off balance. See if you can find out what their number is.

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answers from Phoenix on

We just went through this. In fact, our short sale just closed yesterday. We ended up negotiating with our lender to get a settlement in full. It required us paying back a portion of the loan in addition to the short sale. I took a loan against my 401k to get the money. We felt that it was in our best interest to avoid foreclosure and not carry the debt from our second for the next 6 years.

Have you asked your lender what they would accept for a settlement in full? We started off by offering 20% (the short sale paid 10%, so we were offering 10% of our own). They declined and counter-offered 55%. Our auction date was quickly approaching so we didn't have much time to continue with the negotiations, so we offered 40% and they accepted. I am still kicking myself for not offering 30% or 35%, but we were really under the gun and it could have cost the entire short sale.

Good luck with whatever you choose to do, I know what a hard decision it was for us.

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answers from Phoenix on

We were shortselling our home only if they put in the contract not to come after us. Our mortgage company wouldn't refinance us because we were too upside down and we were in an ARM. We didn't qualify for any loan mods or any other program. We applied 4 times over 4 years and nothing helped. We tried to short sell our house and our mortgage company turned down both our offers. When it went to auction, they set the reserve very high. They foreclosed on us pretty quickly. They made it impossible for us to improve our situation. No refi, no loan mods, no short-sale... only foreclosure. My sister in law short-sold their house and they wouldn't change the verbage on theirs and now they may have to file bankruptcy if the bank comes after them.

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answers from Albuquerque on

I sold my house on a short sale last November, I also had an 80/20 loan (I'm assuming that's what you have when you say you're waiting on the second one). In my case I filed for bankruptcy just in case they wanted to come after me for the deficiency but they sent a release of claim, not sure if they did that because I filed bk or not.

I also wanted to address the 1099 issue. By law they have to send you the 1099 but that doesn't necessarilly mean you have to have it added to your income. You can read a little about that here:
We had our taxes done at a premiere h&r block this year and didn't have any problems with that. Good luck!



answers from Chicago on

the banks would prefer you to go through foreclosure instead of the short sale. as they get their money from freddie mac after the foreclosure. theyw ill get more by doing foreclosure than they would through the short sale. you will end up doing a bankruptcy to get rid of the shortfall.



answers from Flagstaff on

Congratulations on finding a buyer!

I work for a real estate attorney in AZ, and the anti-deficiency law definitely makes it so they can (and will) come after you for the 2nd mortgage, whether you foreclose or do the short sale. They can sue you for anything over the amount of the "purchase money", or the amount you used to purchase the home. For example, if you refinanced your first mortgage and took out a little bit extra, they can come after you for the extra amount once the foreclosure is completed. Also, they can come after you for the 2nd after the foreclosure, since it was not "purchase money."

I would NOT go through with it without getting the advice of an attorney experienced in real estate law. Even if you have to pay a little bit to talk to him, it will be well worth it. Attorneys have a "special touch" when negotiating with others, and hopefully he would be able to re-write/re-negotiate the contract with your mortgage company for you. In addition, besides needing a clause waiving the deficiency, you need one stating that they won't send you a 1099 (if they will agree to this).

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