I am in the process of short selling my house. I expect the deficiency judgment to be waived off before I can do the short sale.

Asked over 1 year ago - San Francisco, CA

My questions : 1 . At what stage , should I expect the bank to give me in written that they will go behind me for the deficiency judgment ? 2 . What is the format of the letter that I can expect ? Is there something that I need to watch out for ? The property is in Las Vegas , NV and I live in San Francisco , CA Please help .

Attorney answers (3)

  1. Frank Wei-Hong Chen

    Contributor Level 20

    2

    Lawyers agree

    Answered . If the property is located in Nevada, you should check with a Nevada attorney and/or repost your question under Nevada law.

    In California, once the lender agrees to a short sale for your primary residence, the lender cannot go after you the borrower for any deficiency (per SB 931 and SB 458).

    Frank W. Chen has been licensed to practice law in California since 1988. The information presented here is... more
  2. Richard Ivar Rydstrom

    Pro

    Contributor Level 9

    1

    Lawyer agrees

    Answered . Although it may not be required, in California, in most circumstances, a seller should get a written release from PERSONAL LIABILITY stating that there the debt was paid in full for less with no deficiency balance. Short sale agreements or approval letters differ; not all have a release of liability or balance provision. Also, that silence may cause CREDIT uncertainty as well. To be certain, get it in writing.
    Liability:
    A new law came into effect on July 15, 2011 which generally protects California sellers/borrowers (out of state borrower should also consult an attorney in the state of the res).
    A short sale agreement is a release of the lender’s security interest, or its lien secured by the home, for less than the balance owed. A short sale approval allows the homeowner to sell the property free of the security interest for less then owed. The short sale approval may be silent as to personally liable for the short sale deficiency. If there are no laws protecting homeowners from short sale deficiencies in your jurisdiction, the seller/borrowers may have liability. It is not uncommon that short sale lender’s require the borrower to partially or fully repay the deficiency. Many ask the seller/borrower to sign a promissory note for full or partial repayment of the deficiency. The letter/agreement (signed by the short sale lender) should clearly address the lender’s right to pursue the borrower for the deficiency, and state that it is fully releasing the borrower from personal liability for the deficiency, and that the debt is paid in full with no balance due. California is not a non-recourse state and California law protects borrowers from personal liability after a short sale/foreclosure, but not in all circumstances.
    Credit:
    It is understood at this time that FICO research reveals that a short sale with no deficiency balance has less of a negative effect on a borrower’s credit score compared to a short sale with a deficiency balance or foreclosure. Lenders typically report a short sale with full waiver on the borrower’s credit report as "paid in full for less than agreed," but there are many other possibilities as well. Therefore it is best to get a plain English full release expressly stating that: the debt is paid off in full and that you have no deficiency balance -- so you can protect your credit. GET IT IN WRITING!

    THIS IS A NON-EXHAUSTIVE ANSWER.

    We don't not have all the facts to answer this question fully, but you (elder father) may have rights to enforce... more
  3. Brian Leigh DeWitt

    Contributor Level 9

    Answered . As the other attorneys advised, you will need to hire an attorney licensed in Nevada to review the Short Sale Agreement that the bank will provide to you. The bank will ask you to sign the agreement before the closing. It is negotiable and you want to be released from all liability relating to the debt and the property.

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