Deficiencies and Loan Forgiveness For Henderson Short Sales

Posted under Short Sales by Louie Frias

Negotiating a deficiency is at once the most critical and frequently overlooked aspect of completing a short sale. Why? It helps to understand the relationship of the parties involved. To state the obvious, lenders pay Realtors when a home sells. Therefore, Realtors have a financial incentive to close as quickly as possible. That being the case, who ensures that the sellers are relieved from any loan deficiencies?

Negotiating a deficiency is at once the most critical and frequently overlooked aspect of completing a short sale. Why? It helps to understand the relationship of the parties involved. To state the obvious, lenders pay Realtors when a home sells. Therefore, Realtors have a financial incentive to close as quickly as possible. That being the case, who ensures that the sellers are relieved from any loan deficiencies?

Considering the settlement of a deficiency requires legal analysis and specific language, it’s no wonder this all-important part of the negotiation is bypassed regularly when anyone but an attorney is handling the negotiation. As a Realtor, I DO NOT render a legal opinion or give advice on terms and settlement language. My clients need qualified legal interpretation and a written analysis of their closing documents. Anything less spells A-M-A-T-E-U-R…

With a short sale, the lender has three possible waysto handle the deficiency balance, which is the portion of the mortgage debt not covered by the sale of the home:

1. The lender can attempt to collect the deficiency balance from the seller after the sale of the property has closed.

2. The lender may require the seller to sign an unsecured promissory note for the deficiency balance as a condition of agreeing to the short sale. If the new note is for less than the balance of the original debt, the difference would be considered canceled, or forgiven, debt.

3. The lender may agree to cancel the entire deficiency balance

There’s almost nothing more important to the seller than the release of both the property lien and the underlying personal debt secured by the note. Otherwise, the lender may not forgive the personal debt and begin collection activity. It should also be noted that Federal loan forgiveness law does not grant all sellers loan forgiveness and does not relieve sellers from taxes levied in certain states.

For more information onhow we help you avoid all such issues, 

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