Dear J.D.;
My name is Veronica and I had been finally adapting to my new lifestyle after several tumultuous years when I received some shocking news. My story begins in 2008 when my husband and I agreed to an uncontested divorce after 15 years of marriage. I received one year of rehabilitative alimony while I studied for my master’s degree in the bio tech field. I received a job offer at the beginning of this year and was excited to begin a career in research.
In 2009, my ex-husband and I sold our marital home in a short sale. Although the process was arduous and the buyers threatened to cancel the contract two times, I was relieved to receive the short sale approval letter from the lender after months of waiting. I was surprised that the lender accepted $150,000.00 less than the amount we owed. I was happy to complete to the sale of the home that I had shared with my ex-husband.
Last week I opened some mail and saw an envelope from a law firm. I had avoided the court system through the uncontested divorce – and the short sale prevented a foreclosure of my marital home. I was not prepared for the letter with the following message:
“We have been retained by your former lender to seek the payment of the deficiency in the mortgage resulting from your short sale. You and/or your ex-husband are responsible for the sum of $150,000.00. If we do not receive the amount you owe within 10 days of your receipt of this letter, we will proceed to recover the debt in the courts along with our attorneys’ fees and costs.”
I read the letter a second time in disbelief. How could this be happening? I immediately went to my desk and opened the file for the short sale. I fumbled through the papers looking for the short sale approval letter. Surely I would find the language that I could provide to the law firm to stop them in their tracks. I read the letter over and over looking for the language in which the lender confirmed that the mortgage was considered paid and the lender waived or released the deficiency. I became frantic as I realized that the waiver or release was not in the letter. The phone began to ring and I noted on the caller id that it was my ex-husband calling. He confirmed that he received the same letter and he was experiencing the same reaction.
Please publish my letter to help other unsuspecting homeowners to avoid my nightmare.
Signed, Frustrated in Florida
P.S. I was told by several people I did not need a real estate attorney for the sale of my home!
Answer
Posted : July 12, 2010
Dear Veronica,
Many lenders have not been releasing or waiving the deficiency in short sales. Most sellers do not know that they should be seeking a release or a waiver. The deficiencies in shorts sales total billions of dollars and there are collection attorneys and agencies willing to pursue these monies. They can sue the homeowners and obtain a judgment against millions of unsuspecting sellers who failed to ask about a waiver or release of the deficiency. You and your husband are jointly and severally liable for the deficiency as outlined in your mortgage and note. That means that the lender can try to collect all or part of the debt from you or your ex-husband. In Florida, a certified recorded copy of the judgment will act as a lien for 10 years against your property and it can be re-recorded for an additional period. It will likely be reported on your credit reports. A judgment holder in Florida can require you to appear in Court and disclose all your personal financial information. Wage garnishment and levies on bank accounts and other investments are remedies creditors may pursue.
Since you did not understand the results of the short sale, you are now faced with surprising news. I advise you to seek the advice of an attorney regarding asset protection planning. In Florida your homestead and certain investments are exempt from the claims of creditors. You may also want to consult a bankruptcy attorney. Please tell everyone you know who is considering a short sale to read the approval letter to understand if the lender has waived a deficiency.
With the proper advice you will be Less Frustrated in Florida.
Sincerely, J.D.
Dear J.D.;
I am Josette. My husband, Frank, and I enjoyed the South Florida lifestyle with our two children until the economic downturn in 2007. Frank is a building contractor and I am a real estate agent. Frank’s projects diminished and my telephone rang less frequently with fewer buyers and sellers in the marketplace. As with most Americans, Frank and I had bought and sold several homes during our marriage – each time a larger and more expensive home to accommodate our family. In 2006 we purchased a home for $525,000.00 with a mortgage of $420,000.00. Also at the closing we obtained a credit line in the amount of $50,000.00.
By the middle of 2008 Frank and I exhausted our savings in order to pay our monthly expenses and the tuition for our children’s school. We began to use our credit cards to keep up with the bills with the expectation that the economy would turnaround at any moment. One high priced closing is all I would need to infuse our bank account with the necessary cash to keep us afloat. But that closing did not materialize. In 2009 we came to the realization that we had to cut our expenses and we would have to sell our home. Unfortunately the value of homes in our subdivision continued to decline and the fair market value was $400,000.00. With $470,000.00 in mortgage debt to the first and second mortgage holders, we listed our home for a short sale. Frank and I submitted all the information and documentation requested by our lenders along with a contract from a buyer for a sale price of $375,000.00. Several months passed and the lender requested updated financial information. The file had been lost and then our loan was assigned to several different processors.
Another month passed and the buyer cancelled the contract because he did not want to wait any longer for a response from the lenders. Our home was now back on the market and Frank and I heard that a home like our home across the street sold for $350,000.00. We were dismayed when we received the next short sale offer of $325,000.00. It was submitted to the lender with the thrice updated financial information. Months have passed which actually feel like years. I am afraid this process will never end. My marriage is suffering and I am afraid I will have a nervous breakdown before this is over. Please tell me what I should do since I see bankruptcy as the only alternative?
Respectfully, Josette
Answer
Posted : June 12, 2010
Dear Josette,
Help is finally here. Millions of Americans like you and Frank have experienced the frustration of short sale reality. As of April 5, 2010 there is renewed hope that the short sale lenders will finally be more responsive with the implementation of the Home Affordable Foreclosure Alternatives Program (HAFA) under the federal government’s Making Home Affordable Program. Homeowners are eligible for HAFA if they meet the following criteria:
Principal residence
First mortgage originated before 2009
Unpaid principal balance no more than $729,750 for single family residence
Borrower’s total monthly payment exceeds 31% of gross income
Under HAFA the response time of a lender to a short sale request by a homeowner will be 30 days. The homeowners can receive pre-approved short sale terms before they enter into a contract for sale and purchase. Then the homeowners will have 14 days to accept the short sale terms. The homeowners will be given an initial period of 120 days to sell the house – with extensions permissible for up to 12 months. Within 3 business days of receiving an executed purchase offer, the homeowners must submit it to the lender along with proof of funds or a written mortgage commitment letter from the buyer. The short sale lender must respond to the homeowners within 10 business days. The transaction must be “arm’s length” and the buyer will not be able to sell the property again for 90 days to prevent investor “flipping.”
One of the most exciting provisions of the program is that the lender must release the homeowners from future liability for the balance of the mortgage debt and, if a subordinate mortgageholder receives an incentive under HAFA, that debt must also be fully released from future liability.
Participating short sale lenders are prohibited from requiring a reduction of the real estate commission agreed upon in the listing agreement (up to 6%).
The program also provides for $1,500.00 for the homeowners for relocation assistance.
It is believed that 85% of American mortgages are HAFA eligible.
Josette, there may finally be a light at the end of the short sale tunnel for you and the necessary vigor from HAFA to relieve your weary spirit.
Sincerely, J.D.