Hat tip to Schahrzad who had this video about short-sale liabilities on her blog:
Here’s the hangup with short sales. This bankruptcy lawyer re-affirms that borrowers who arrange a short sale with their first lender can still be responsible for any deficiency with the second lender – check for specific language.
Jim Klinge
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Good info. I can’t help but think that the 2nd lenders are going to either sell their interest to a 3rd party who will pursue the deficiency, or, come after the money later themselves despite their “inducements”. It’s a matter of time and will be a nasty surprise for many.
Mozart – I fully agree because you hear an odd quietness from HELOC/2nd lenders about their 100%+ losses.
Thus, I believe they are just waiting out the storm, tracking the borrowers. Waiting till they buy something again and prices go up…then BAM, attack the equity.
Not sure what general timeline these parties have to enforce their rights (7, 10, forever??) but it will happen. All this paper is sitting in someone’s file cabinet, not a shredder.
I hate to say I told you so, but I always say that foreclosure is often better for the borrower than a short sale.
BTW, just because the bank doesn’t pursue collections, doesn’t mean they can’t sell that receivable to someone who does. That letter means nothing when they start calling you every day at dinner time 5 years after the foreclosure and you think you’re “safe”.
Chuck
Exactly. Plus even with a foreclosure you’ve still got many with HELOC’s who then bought a new Harley or trip to Cancun, stuff not just for the house who would seem to be exposed down the line.
I’m sure there are collection agencies drooling at the thought of chasing what was once secured paper and half-way decent borrowers.
They should collect $0.30 to $0.50 on the dollar.
Here’s his video where he talks about the second lenders still having recourse when the first lender foreclosed on refinanced money (not purchase money):
http://www.youtube.com/watch?v=kih5YTcPl_M&feature=player_embedded
Great add-on to Bubbleinfo, Can u cut a deal to embed his videos so we don’t have to go to another site? He prob doesn’t care as I assume the goal is to generate clients not build a website?
PS: Videos by the assistant guy should be marked. He needs another 20 years to develop the requisite caustic wit.