Negotiating Deficiency with the Bank

Negotiating the deficiency (amount left over after the sale) is the most important task you or the Realtor will take on because it is the difference between potential future litigation and starting fresh. Here are some things to know about negotiation:

Document, Document, Document:
One of the first things a bank is going to look at is your ability to repay all, or a portion of, the outstanding debt after the sale. You must be able to prove (legitimately) that there is no financial way your household can contribute to any portion of the deficiency. You can prove this via paystubs, tax returns, letter of unemployment benefits, or a company letter showing elimination of your position.

Keep the Pressure On:
You cannot assume that the bank is working on your case. In fact, the only time they are most likely working on your case is when you call or it comes up next in their stack. If the bank has countered with a deficiency note (payment plan for some or all of the amount owed after sale), then you must re-counter and prove your case again by referencing documents that you have sent that prove you cannot afford the payment plan. Be aware that if you have private mortgage insurance on your loan the insurance companies are increasingly asking for at least $5,000 or $10,000 on a deficiency note. Continue to call and plead your case, but make sure your conversations are professional. If you are still not getting the answer you want to hear ask for a manager and plead your case to them. Often times they may have the authority to override the negotiator.

Get it in Writing:
If a bank does agree to waive the deficiency balance you MUST get it in writing and it should say something like..."ABC Bank agrees to waive its rights to pursue the deficiency balance". Just because the bank doesn't ask you for payment on the deficiency doesn't mean they won't come after you in the future. In reality, some banks will look at your probability for re-employment and would rather not negotiate the deficiency balance with you today and wait for you to find employment in the future. There is a much higher probability that you will negotiate the deficiency then if the bank sues you and obtains a deficiency judgment. In addition to putting the waiver of deficiency in writing, it would also significantly benefit you if you could get the bank to put in writing that the balance will be reported as 'settled in full' to the credit bureaus. Although I have never seen this happen in all my years of banking I have been told that some have been successful at accomplishing this task. Every short sale I've seen or been involved in has been reported as 'settled for less than the full balance', which is a much harder hit on your credit.

Remember, a bank doesn't have to do any of the above so you should treat every call with absolute professionalism, and every call should always focus on the facts.

If you already have a Realtor selling your house for less than what's owed ask them what the most important things are for you to be concerned about with a short sale. If the answer doesn't include all of these 'Deficiency Balance, 1099 Tax Implications, and Credit Impacts' then it's time to shop for a new Realtor because they aren't informed. There are other items but none as important as those.

If you are having a financial hardship and would like to work with a Certified Distressed Property Expert please contact us immediately. If the bank is paying for it why wouldn't you choose the best?

J.D.A.