Hi folks. Here's a very good question asked by one of our members over at www.ShortSaleSuperStars.com.
- I am losing deals left and right due to the MI companies. Looking for any suggestions please! The last deal I was working on, the MI company came back wanting a 76,000. promissory note...of course the sellers walked. Any helpful ideas out there?
My response:
Prepare the Sellers better. If there is MI (Mortgage Insurance) then chances are the Seller (borrower) will be asked to sign a promissory note or make a cash contribution. Ask your Sellers point blank, at time of listing, if they are willing to sign a note or make a cash contribution to get the Short Sale transaction approved and closed. If they say "no way" then think twice before taking the listing. You may also remind them that they already signed a promissory note when they took out the mortgage.
When the MI company ask for a contribution from the Seller what they are really saying is "Your Short Sale has been approved". Now the agent just has to do their job and start negotiating....assuming the Seller doesn't just accept the terms and conditions as offered. Some Sellers WANT to sign a promissory note.
There are a couple of advantages to signing a new promissory note.
- Signing a new promissory note usually replaces the old note.
- The new promissory note is unsecured and can be renegotiated at a future date.
- By signing the new promissory note the Sellers are avoiding foreclosure.
- Creating a new promissory note means the lender ***can't sue for a deficiency on the old promissory note.
Short Sales are not a free walk in the park. There are ramifications to not making your mortgage payments. One is the fact that the borrower may have to sign a new promissory note.
*** Of course I am not an attorney nor can I give legal advice. This article is just the opinion of a Florida Short Sale Broker. Please seek legal advice before implementing any of this information.
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Do NOT be foreclosed on! Avoid foreclosure. Short Sales DO close.
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***I am NOT an Attorney nor do I play one on TV. Click the button below for my Bio.
Tutas Towne Realty, Inc handles Florida real estate sales, Florida short sales, Florida strategic short sales, Florida pre-foreclosure sales, Florida foreclosures in Kissimmee Florida Short Sales, Davenport Florida Short Sales, Haines City Florida Short Sales, Poinciana Florida Short Sales, Solivita Florida Short Sales, Orlando Florida Short Sales, Celebration Florida Short Sales, Winderemere Florida Short Sales. Serving all of Polk, Osceola and Orange Counties Florida. Florida Short Sale Broker. Short Sale Florida.
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So the seller signs the promissory note? I have seen where they asked the buyer. Any suggestions?
Krista. Why would they ask the buyer to sign the promissory note on a short sale? The buyer has ZERO obligation to the current lien holder. That makes no sense. Who asked?
Always important and enlightening information. Thanks for the information BB!
It is interesting that they are now requiring the promissory note. If the client allows a it to go to foreclosure in CA and it is a purchase money loan the second gets nothing. Most of the promissory notes I have seen are come from the seconds.
I had a client sign a promissory note recently; within 30 days, they came back and offered to reduce the note by half if he would pay in a lump sum. And they gave him 3 months to make a decision as he is still job hunting and not in a position to do it right now.
Another good post related to short sales Bryant!
In response to Tim's question (#4), the seconds are in VERY GOOD negotiating position to ask for cash contributions or prom notes in recourse states. But even in non-recourse states like California, they are in positions where they can either make the short sales work or not. So, depending on how the negotiations go - it still might make sense to negotiate for a small cash contribution or a note-back at reasonable terms. You have to take each situation on a case-by-case basis and weigh all the options.
I too am in Calif..non-recourse on PML's. I do Short Sales regularly, and follow you, Bryant on Short Sale Superstars..always good stuff.
I'm running into the PMI's on standard and HAFA Shorts. Once I know there is PMI, which I always tell my Sellers' to find out up front, I find out how much Seller's can contribute or sign a note on. I believe Susan is right..they will want to let that person out for Cash later. I also tell the Buyer's Agent to be prepared to bring some money to pay off the PMI, (I generally figure about 5%). In that way, I have a reserve stash.
Short Sales are a crap shoot, and like you mention, Seller is getting out of a note, but it's hard to convince a Seller with a PML and no seconds, not to let it go to foreclosure where there are no deficiencies pursued, and their debt is wiped out. The "put clause" is enacted.
Most of the promissory notes my sellers are signing are for far less, like $5,000 to $15,000, in exchange for a release of liability on $100,000 to $300,000 of mortgage debt. Although, I did negotiate one Bank of America prom note situation in which the bank absolutely would not back down from its demand of $32,000 -- and that seemed excessively high. But I explain to the sellers that the possibility that the bank will sell that note for pennies on the dollar to an investor is pretty high. And if that happened, a discounted payoff in the future could be far less.
BB - Your bullet points about advantages of signing the new note hit the mark.
BB - As usually this is a great post regarding things that come up during the short sale process. This is a prime example of why I refer short sale listings to the professionals who handle them on a daily basis.
"I'll gladly pay you Tuesday for a Home today!".... Wimpy
Great info. A S/S is NOT a free walk. I agree, that if the seller is not willing to sign or pay based what the lender "may" dictate in negotiation or approval ....then I won't take the listing. And Rich's comment made me LMAO.
Wonderfully said Bryant. Will be re-blogging and suggesting this for a feature.
If the buyer loves the house and is getting a really good deal, then it could be to their advantage to pay that note.
One of my SS Listing clients had the MI want a $10,000 note. Seller refused, stating he would let it go to foreclosure where there is no recourse. We asked the buyer if they would be willing to up their offer by $10k. They said YES YES YES because they wanted that house.
MI refused to let the buyer up the price, saying they require the note from the seller. So we said ok, if the buyer signs an agreement with the seller to bring $10k to escrow to pay off the sellers note in escrow, then the seller will sign the note. MI agreed, and we had a deal. Everybody was happy.
So it's all about the bottom line for everyone including the buyer.
I would be very reluctant to suggest to a seller that if she accepts a note, that she could probably renegotiate it to a lower amount later. I would hate to have them come back on me later if they were not able to renegotiate the note.
I heard one Realtor suggest that because the note is unsecured, that they wouldn't even have to pay it. That's really dangerous.
MI is the pits! So often the owner is totally unaware, because it was purchased by the lender on a high LTV loan, rather than the owner!
Bryant,
You bring some good points and SS strategies to light in "recourse" states.
All the best,
Steve
Good information. I think that if more Realtors prepared their sellers and buyers on how a Short Sale worked, things would be smoother.
BB, You make a great point.
Basically, we are telling most of our short sale clients to expect either a promissory note or some type of contribution.
If they don't get one they are very happy and surprised!
We are listing less short sales when compared to 2009, but our closing ration is above 80%.