HUD Pre-Foreclosure Sale and Deficiency Judgment

[wlawd]

I'm in the final stage of Pre-Foreclosure short-sale (Nevada).

According to MORTGAGEE LETTER 2008-43
page 15, section P it says:

"Mortgagors, acting in good faith, who successfully sell their properties using this option are relieved of their mortgage obligation..."

It is not clear exactly what this mean ? at least for a layman person.
Document says "mortgage obligation", but not explictly "deficiency judgment".

So my question is can the bank file "deficiency judgment" against me after the short-sale is done.

I'm asking because I would rather go to foreclosure and then bankruptcy, rather than waiting 6 years for a surprise.

Thank you very much

There seems to be different opinions on the question:

Is it possible to get a deficiency release on an FHA-insured loan via Chase? - Short Sale Superstars

Question about Citi/HUD Short Sale - Short Sale Superstars

Originally Posted by wlawd I'm in the final stage of Pre-Foreclosure short-sale (Nevada). According to MORTGAGEE LETTER 2008-43 page 15, section P it says: "Mortgagors, acting in good faith, who successfully sell their properties using this option are relieved of their mortgage obligation..." It is not clear exactly what this mean ? at least for a layman person. Document says "mortgage obligation", but not explictly "deficiency judgment". So my question is can the bank file "deficiency judgment" against me after the short-sale is done. I'm asking because I would rather go to foreclosure and then bankruptcy, rather than waiting 6 years for a surprise. Thank you very much There seems to be different opinions on the question: Is it possible to get a deficiency release on an FHA-insured loan via Chase? - Short Sale Superstars Question about Citi/HUD Short Sale - Short Sale Superstars

You need to have specific "no recourse" language in the documents you sign with the bank which in effect says they are accepting the short amount they are getting on your loan and will have no further recourse against you [the deficiency]/

[Friend In Court]

The rule has been that unless there is a judicial foreclosure a lender may not collect a deficiency, However, the letter you have should assure they will not go after for the shortage if they accept the short sale.

Considering the tactics most of the major lenders have resorted to the past few years -- which have them under investigation for fraud by all 50 states' attorneys general, your wariness is understandable.

There's an offbeat way of dealing with your concerns, however. And that's a deed in lieu of foreclosure. If you have a pending sale, the buyer and lender will have to go along with it. In essence what it would mean your assigning your interest in the pending earnest money and sale agreement to the lender, executing a deed in lieu of foreclosure to the lender and let the lender close the deal then as owner. A real quick REO owned property that sells in escrow.,

Deed in lieu of foreclosure was a remedy often used before this current mortgage crisis and the 'mod', 'trial mod', 'short sale' series of hoops mortgagors jump through before eventually losing their home. It's a walk away -- just giving the property to the lender and the lender has no recourse to come after one years later.

Check this out with a real estate lawyer in your state would be my recommendation since laws vary from state to state.

I just got an email back from my realtor...
I wanted her to ask them if they can give me a waiver of deficiency.

What they told her in a sense is that they can't issue such a document, because they have MIP on the loan i.e. they get paid from HUD from what I understand (m'I correct ?)
They can't waive a HUD deficiency and according to:

http://www.hud.gov/offices/adm/hudcl...es/89-14ml.txt

HUD won't file a deficiency unless there is a fraud (which is OK with me).

So my question is could this be true. Once I finish PreForeclosure short-sale the bank can't file deficiency judgment, only HUD can AND they will file such thing only if there is fraud involved ?

Thank you

[Friend In Court]

Originally Posted by Unregistered I just got an email back from my realtor... I wanted her to ask them if they can give me a waiver of deficiency. What they told her in a sense is that they can't issue such a document, because they have MIP on the loan i.e. they get paid from HUD from what I understand (m'I correct ?) They can't waive a HUD deficiency and according to: http://www.hud.gov/offices/adm/hudcl...es/89-14ml.txt HUD won't file a deficiency unless there is a fraud (which is OK with me). So my question is could this be true. Once I finish PreForeclosure short-sale the bank can't file deficiency judgment, only HUD can AND they will file such thing only if there is fraud involved ? Thank you

HUD does not go after individual borrowers unless there is fraud involved. I stand by my original answer. If you do a deed in lieu of foreclosure to the bank, it then becomes the bank's property and sale. HUD can look to the bank for they will be the one who sold it short, not you.

Hmm, I'm skeptical. I've been researching the HUD statement you referenced and it seems clear from the wording that HUD is not the one who pursues the deficiency judgment. They say specifically,

"The Department has already begun requesting or requiring
mortgagees to obtain deficiency judgments in instances where the
mortgagors are non-occupant owners; have previously defaulted on one
or more FHA-insured mortgages resulting in the payment of claim(s);
or are "walkaways," having abandoned their mortgage payment
obligations despite their apparent continued ability to pay."

"The Department has already begun requesting or requiring
mortgagees to obtain deficiency judgments"

This part makes it clear that the "mortgagee" is the one to obtain the deficiency judgment (the mortgagee being the holder of your loan.) Furthermore, at the end of this statement, it says,

"Please note that only where pursuit of the deficiency judgment was
requested or required by the Department, or where HUD has approved a
mortgagee's request for permission to pursue a judgment, will the
expenses connected with this action be reimbursable when the claim is
filed."

So the statement was made to say that mortgagees will only get reimbursed for obtaining a deficiency judgment when fraud was involved. Which implies that mortgagees may choose to obtain a deficiency judgment even when fraud isn't involved. The government has nothing to say about that unless the state forbids it.

So depending on Nevada's laws (I don't know them) the bank may still come after you. You said that your bank claimed it couldn't waive the right to obtain a deficiency judgment on a FHA loan. That may be true, but notice they DID NOT specifically say that they wouldn't come after you if fraud wasn't involved.

Beware, I can only take the fact that they didn't explain that to you to be a sign that they wish to keep that right for the future. Maybe modifying the loan would be a better choice, but you should also beware of legal groups that say they will help you get out of your foreclosure scott free. With the current laws and predatory behaviors by legal entities, it seems unlikely there is any "quick fix" to this situation many people find themselves in.

I suggest you research everything you don't completely understand, check several sources, read all fine print and get advice from someone who has knowledge of this system and no interest in deceiving you. Good luck.