A couple of days ago, I was talking with one of my colleagues about Short Sales. I was astonished when my colleague told me the story of one of her clients in Woodstock, GA. The client had a first mortgage and a line of credit with one of the banks that was saved from collapse by being bought out during the crisis. During the Short Sale process, the second lien holder said that the only way the Short Sale could happen was if the client signed a deficiency note - because when they signed the papers for the line of credit, they signed two types of notes: one against the house, the other was a Personal Note. Since the lender had the Personal Note, they felt they had the right to have a deficiency note signed by the home owner, or otherwise the Short Sale would not happen.
The client decided to sign the deficiency note. Three months later, and life has moved on. They now live in a different state. Their son won a scholarship to go to college, and their life was taking a positive turn.
Last week, they found out that their bank accounts had been frozen. They had left their checking and savings accounts with that same bank that had required the deficiency note. The bank froze their accounts and took all the salary earned by the husband - and did not stop there. The son who was going to college also had his account with that bank, and had received his scholarship payment as well. But since he was a cosigner for them..... The bank took all the scholarship money as well.
How far can a bank go with a deficiency note? Far enough to ruin the life of a student waiting to start his college career, certainly, and without a moment's troubled conscience.
This story has helped me fight even harder every day for my clients, and to NEVER accept a deficiency note in any of my transactions. If you end up agreeing to one on behalf of your clients, at least tell them to make sure they don't have any other accounts with that bank - or any of its tangled siblings as the banks buy each other out.
Please share your good and bad experiences with me - we can learn from each other.
Real Estate Agent specializing in the North Fulton area and in Commercial and Residential Short Sales throughout the Metro Atlanta area.
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With a promissory note, your clients agree to pay back on the note. If they fail, then the lender can sue them in court and get a judgement. With a judgement, they can collect by so many methods.
Thanks for that great comment. Certainly, when they signed the paperwork they agreed to the debt. What I wanted to share with everyone is that now lenders who do Lines of Credit are requiring both a lien AND a personal guarantee - just because of the current economic situation. Borrowers need to be aware of this before signing.
I also think that it was not appropriate of the bank, whatever the paperwork says, to grab the son's scholarship money.
But the main lesson in all of this is to avoid Deficiency Notes completely if you can. Of all my short sales I have never had a client sign a deficiency note.
Hope you are all having a happy 4th of July!
Adriana
Just realize that equity line of credits can be recourse loans and have always been (no such thing as both a personal and secured lien). Therefore there might be times where they can still go after the buyer even when the property forecloses. Know the types of loans available and what your client has to better help them. As it is, you are preaching to the choir.
Happy 4th to you too.
I am extremely under water in my mortgage. I have tried originally to modify my loan but that was not good then we hired a realtor to assist in a short sale. I had a buyer within the first month. Well, now they are approving the short sale but want to issue a deficiency amount for the difference. We are talking $170,000. I am so confused because I do not know what to do. I even just hired a short sale/loan modificaiton attorney to step in and they go no further than my realtor did.
Any advise would be grealy appreciated. We are a very distraught family trying to find the best answers to this nightmare.
Kim:
I can't give you specific advice for your situation in this forum for several reasons. Primarily because I don't have enough information on the details of your situation, and if even if I did offer specific advice, someone in other circumstances might follow it and get themselves in worse trouble because their situation was not yours.
I suggest that you give me a call at 678-534-2718 and I'll do what I can to help you with your situation. First, there is no cost or obligation to such a call. Your information will be safe with me, I deal with these confidentiality issues every day.
I can only operate in Georgia, so if you live in another state I might be able to help you by referring you to a specialist who could give you the same kind of help I would. I have a network of agents in several states who work with me. There are so many out there who take advantage of this situation and provide no help - examples I've called out in my past blogs - that you almost need to be an expert to know when you're dealing with one. It sounds as if you've fallen into the hands of this sort.
Each state has different laws and requirements when it comes to short sales and deficiency notes, and some banks have found loopholes around some of the laws to get them anyway. If the lender pursuing the deficiency note is because of a line of credit you signed up for after purchasing the house, they have additional methods as well.
The upshot of all this is that anyone would need far more information in order to help you. Private information you should certainly not post in a forum like this. But give me a call and I'll make sure you get pointed in the right direction.
Adriana