Short sale denied if I do not sign promissory note

jere_day · Joined: 16 Apr 2008 Posts: 2 2.70 Dollars($)

I purchased a home in Florida in 2004, was unable to refinance as property was appraised significantly less than what I bought it for. Decided to put it up for sale in Sept '06 and only received ONE offer in Sept 07. Stopped making mortgage payments in June 2007, couldn't handle 3 mortgages (plus I am in CA, hard to manage home on opposite coasts). Never made late payments until June 07, tried to alert lender ASAP to "work" with them in good faith. Not very helpful at all and very slow to respond. Now working with a RE Agent and 3rd party short sale company and have been going through a short sale process with that ONE potential buyer since Sept 07... Seven months later, I am told that the lenders say the PMI company will not approve the short sale without signing a promissory note of $24K in favor of PMI. Not sure how they came up with this amount - 1/4 of balance still due on original loan after short sale??? If I don't sign, I'm told will foreclose (DIL was not given as an option). I DO NOT HAVE AN EXTRA $400+/month to pay, can barely pay the home I'm in (late every month). Had quick consultations w/ some attorneys in CA and FL but I am unable to hire one (no money, of course) I'm confused and pressed for time. Signing the note may be a waiver or may compromise my anti-deficiency protection (if applicable? Is there protection in the state of FL?) Also, if I end up having to file bankruptcy, according to the note it would be considered defaulting on the loan and they could arguably object - thus severely limiting my options! Potential buyer is hanging by a thread - could lose in the next 48 hours.

Difference between what I paid for the home and short sale purchase price is appromimately $103K. If I sign the note, is the $24K the only amount I will be responsible for paying? Or do I still have to deal with the $103K balance? Will I be still be 1099'd? If I can't pay, what will happen to me? What if I can't pay anything? My credit is screwed no matter what - I don't know what to do. Help!

Guest 0.10 Dollars($)

why aren't you using the PMi to pay off your mortgage?

larry · Joined: 27 Jun 2007 Posts: 3328 473.40 Dollars($)

Hi jere_day,

Welcome to the forum.

You will be responsible for the $24K to the PMI company but the lender will still owe to you $103K. Is not the PMI company paying anything for your mortgage?

jere_day · Joined: 16 Apr 2008 Posts: 2 2.70 Dollars($)

See, this is one of the reasons why I'm confused. What's the point of having PMI if they can't pay? Strange they are asking ME to pay. I kind of see it like purchasing auto insurance, getting in an accident and having the insurance company tell me I have to pay for the damages. Just doesn't make sense. One of the attorney's in CA that I spoke with said something didn't seem right. The 3rd party short sale company said it was rare for the PMI company to ask for a promissory note and they've only had a handful of cases. Someone else I spoke to said to just sign the note and default on it -- to avoid a foreclosure. Really can't afford the extra $400+/month and on top of that, to be taxed on the $103K. Ultimately, what would end up costing me more -- the $24K note/tax on $103K or a foreclosure?? I've got 3 other mortgages and cc bills - should I just file bankruptcy (ch. 7)?

larry · Joined: 27 Jun 2007 Posts: 3328 473.40 Dollars($)

Hi jere_day,

Welcome back.

I think you should first talk with the PMI Company and see whether they will pay off the lender after you paying 24k to the PMI Company. I think they will pay off and that is why may be they are asking you 24k.

But if they don't pay then you may think about filing BK. But I would rather suggest you to file Ch 13.

Feel free to ask if you have any further queries.

Best of luck,
Larry

Caron

Hi jere_day,

As far as I understand, the insurance company should pay the lender because you are on default. That's the reason you have been paying the PMI premiums. I've never heard an Insurance company asking to sign a promissory note for PMI. Seems fishy..may be they’re trying to extract money for you because you won't be paying the premiums due to the default.

gmakerley · Posted: Thu Apr 17, 2008 5:52 am Post subject:

comparing private mortgage insurance to automobile insurance is like comparing an infant to an adult. there is literally no comparison. private mortgage insurance is designed to protect the lender from the possibility of default on a loan that was granted with a minimal amount of down payment. there is no protection designed for the borrower at all - this should have been explained to you at the time you applied for/received this mortgage.

i am afraid i don't have a solution for your problem at all - $103K is a great deal of money that is being lost by the lender. bankruptcy may or may not be a way out of your problems, but the most effective way to find that out is to discuss your options with an attorney schooled in bankruptcy laws and all the ramifications attendant to it.

Caron · Posted: Thu Apr 17, 2008 6:02 am Post subject:

But george I'm doubtful as to whether the lender will include the $24K in $103K and moreover do you find any difference between form 1099c and 1099d. I find many asking questions about 1099c while being in short sale or dil, again this guy seems to be talking about a similar issue the tax on forgiven debt but with reference to 1099d. any difference as such?

gmakerley · Posted: Thu Apr 17, 2008 6:06 am Post subject:

unfortunately, caron; i have no expertise in tax matters. i always defer to tax experts for questions of that sort. some lenders file for deficiencies, some do not - i think it is a flip of the coin to know who will and who won't.

no matter how you slice it, this borrower/poster is in deep trouble - he noted that he is unable to maintain regular payments on his current home.

truly, i don't have any suggestions.

Guest 0.10 Dollars($)

Thanks for all the replies - I appreciate Caron breaking the answers down by each question. Just heard from my RE agent, I need to let them know if I will sign the note today or just proceed to foreclose.

I went back and read through the paperwork. The $24K is a quarter of the PMI's loss. Sorry if I keep repeating myself, my mind is jumbled from the pressure and my numbers were not exact. I am more of a visual person...

Maybe this would help:
I purchased the home for $333,706
-Current loan is $317, 021 (will be more due to missed payments from June 07-present, right? Monthly mortgage was $2384; included home insurance)
-Short Sale price $231,000
-Balance still due to bank/PMI $86,021 more or less
-If I pay the $24K, remaining balance (PMI's loss?) would be ~ $62,021+

Am I understanding this correctly? So my question now is am I still responsible for the $62,021+ or will PMI take that as their loss and I will be done and only financially responsible for the $24K note? Is this like a settlement? OR, will that amount be considered "income" and I will be taxed?

As far as my 3 other mortgages; I have a 1st and 2nd on my primary residence and the 3rd is for another property in CA (no renters in that one!). FL is the 4th...

If I file Ch. 13, isn't that the one where you will have to pay back? I just don't see how I will be able to do that.

larry · Joined: 27 Jun 2007 Posts: 3328 473.40 Dollars($)

Hi Jere,

Ideally I think the PMI Company should give it. But you should better talk with the PMI Company directly on this ASAP.

Now if you file chapter 13 then you can keep the home and you can pay the due mortgage on an affordable rates and terms. Chapter 13 also helps you to get rid off debt collection agencies.

Feel free to ask if you have any further questions.

Best of luck,
Larry

Samantha · Posted: Fri Apr 18, 2008 5:07 am Post subject: RE:

I don't think there are any collection issues bothering Jere, isn't it? if you do have any such issues, well, you can include that unsecured debt with the bankruptcy. By the way, jere, are you comfortable with the other 2 mortgages, are you paying them or what exactly have you planned to do with them?

Guest 0.10 Dollars($)

Jere, is the mortgage on the other investment property (the CA one with no renters) affordable to you? The short sale and default on your Florida property is going to present a challenge to your credit for a while. You may want to consider whether it makes sense to continue making payments on this property if ultimately it will result in a short sale. The sooner you sort out these credit problems, the sooner they fall off your credit report. I am just concerned that you try to hold onto this other property for a year or two, and then have to sell it short -- this would mean two more years of bad credit in the future. Just a thought.

larry · Joined: 27 Jun 2007 Posts: 3328 473.40 Dollars($)

Hi Kevin R,

Welcome to the forum.

Good suggestions and very well said that walking away is not the solution if you can make your payments. It will only effect the credit report.

Are you a lender or a mortgage professional? You seems knowledgeable. Why don't you join this community and help people with your sound knowledge and suggestions.

Best of luck,
Larry

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