Deficiency Judgements

Q: Will I still owe the difference after my CT short sale?

A: It all depends on what your short sale approval letter says.

Connecticut is a deficiency state. What that means to any CT homeowner is that your lender can pursue you for a monetary loss resulting from a foreclosure or short sale of your property - unless your short sale approval letter says otherwise. Many people mistakenly believe that letting the home foreclose, walking away or simply sending in the keys absolves them of their responsibility for their mortgage - however this is absolutely not the case.

When you signed up for the loan you agreed:

• To pledge the property as collateral for the loan
• To sign a promissory note to pay back the loan

IN A FORECLOSURE the…

I’ve been hearing a lot lately about Fannie Mae forcing customers to go into default in order to approve their short sales, so I knew we’d be up for a rough road with this client. While most of my clients are behind in payments by the time they call me, this CT home seller had reasonable income, heavy liquid assets, great credit and intended to not miss any payments in order to preserve her excellent credit.

Any condo in Connecticut is a tough sell right now as condo financing options here have really crumbled. However, after 2 months on market a buyer was secured for the condo. Chase’s (the servicer on this Fannie Mae loan) short sale processing has really eroded over the last few years, and gets more difficult and time consuming all the time.…

Almost 16 months after investigation into robo-signing began, a deal has been reached between feds and 5 of the nation’s major loan servicers: 

• Bank of America
• GMAC/Ally
• Wells Fargo
• Citi
• JP Morgan Chase 

The settlement goes down as the largest consumer financial protection settlement in US history and settles state and federal findings that servicers violated state foreclosure laws. Borrowers in 49 states (Oklahoma did not join the settlement) will be eligible for relief including: 

Principal reduction for eligible borrowers:  Homeowners behind on their payments will be eligible for loan modifications, including first and second lien principal reduction. Due to the number of borrowers affected the reduction is expected to…

YES, CONNECTICUT IS A RECOURSE STATE

An internet search for the answer to this question, will frequently give the COMPLETELY INACCURATEanswer that CT is an anti-deficiency/non-recourse state.

This is a widely spread incorrect fact. If you live in Connecticut and your home forecloses - the lender absolutely has the right to sue you for a deficiency judgement.

In CT, a deficiency judgement may be pursued by the mortgagee in both a strict foreclosure, and foreclosure by sale.

Per Connecticut Mortgage Law:

  Sec. 49-14. Deficiency judgment. (a) At any time within thirty days after the time limited for redemption has expired, any party to a mortgage foreclosure may file a motion seeking a deficiency judgment. Such motion shall be placed on…

Bank of America has always been very stubborn about retaining their right to pursue a deficiency in their short sale approval letters. To my surprise, my most recent Bank of America short sale approval letter came with new language, completely releasing my client of all future liability for the debt.

Unfortunately, soon after the buyer flaked out and we had to secure another buyer and get a new approval. This time, the approval letter read the same way as the old Bank of America letters, with Bank of America retaining their right to pursue the deficiency once again.

BUT - THE THIRD TIME WAS THE CHARM. Soon after the second approval, the sale fell apart again for a major inspection issue. A new price for the property was renegotiated, and back we…

Yesterday I received another short sale approval letter from Bank of America. This time was a little different than the rest. Those of us who do a lot of Bank of America short sales know that this is one of the worst banks to deal with when trying to get a deficiency waiver. Bank of America's short sale letters have always looked pretty much the same. Regardless of the investor on the loan ( the exception being FHA and HAFA SHORT SALES) The second paragraph of their short sale approval letter has always read:

"BAC Home Loans Servicing, LP and/or its investors may pursue a deficiency judgment for the difference in the payment received and the total balance due, unless agreed otherwise or prohibited by law, if the short sale closes on the loan…

I got a call from a Southbury, CT gentleman over the weekend. He was calling to find out his options regarding his foreclosure.

Regrettably, the real problem was he had already been foreclosed on 3 weeks ago. The lender now owned his home. In fact his former had also just begun proceedings for a $75,000 deficiency judgement.

At first he wanted to know how long he could stay...

I explained he may have a couple weeks to a couple months if the lender had to go so far as to evict him.

Then he asked would it be possible to make a repayment arrangement with the lender...

The time for that had passed.

Could he buy his home back with a new mortgage?...

Unfortunately there was no chance of him qualifying for a new mortgage for several years…

Deficiency judgements in CT: Will you be held responsible for the shortfall in a short sale?

Connecticut is a deficiency state. This means the lender that suffers a shortage in a foreclosure or a short sale has the right to pursue a deficiency judgement from the borrower.

How does this affect you as the homeowner?

In a foreclosure the lender can handle their shortfall as they wish. They can and sometimes do sue the homeowner for the loss they have suffered. You will have no control over this in a foreclosure.

HOWEVER - If you are involved in a short sale, you (or your agent negotiating the short sale) will have the opportunity to negotiate how the loan is settled. The terms of your short sale will be spelled out in your approval letter which…