THE HOMEOWNER INTENDS TO NEGOTIATE A RELEASE
The homeowner’s intention to negotiate a waiver of the deficiency judgment should be disclosed at the earliest possible opportunity during the short sale. Recently we have witnessed several short sales terminate unsuccessfully because the homeowner realized she was subject to a potential deficiency judgment upon receipt of the short sale approval letter. It came as a shock.
It came as less of a shock to the lender when the homeowner, three weeks before close of escrow, for the first time, insisted that the lender forgive the deficiency judgment. In response to the homeowner’s request, the lender’s representative said, a release was not forthcoming “because the investor of the Note said it was their policy not to waive deficiency judgments”.
DISCLOSE ALL SHORT SALE TERMS AS EARLY AS POSSIBLE
The idea is to inform the lender, at the beginning of the short sale process, that the homeowner intends to negotiate away the lender’s right to pursue the deficiency judgment. The real estate agent should state that in no uncertain terms as soon as possible, and in writing.
The lender can respond to the request for the debt forgiveness in a number of ways; they can ignore it, say no, counter-offer, etc. But either way it is critical that the homeowner’s intention to have the lender waive the deficiency judgment disclosed at the beginning of the short sale process.
THE HOMEOWNER RELIES ON THE LENDER’S PROMISE TO FORGIVE
If the homeowner requests a waiver early on in the short sale process, as the short sale process nears completion, the homeowner can begin advancing that she relied on the lender’s promise to fully release all of the debt. The lender is more likely to agree to the release if it does not come as a surprise, and there is some evidence that the lender was on notice of the homeowner’s “condition” that there would be a release as part of the short sale.
In other words, the homeowner argues that they would not have attempted the short sale had they known that the lender would not forgive the debt.