Some homeowners are finding that when they sell their homes for less than the outstanding mortgages -- a so-called short sale -- their mortgage companies are going after them for some or all of the difference. Mortgage companies are also sometimes taking legal action to recover unpaid amounts after a foreclosure is completed.
In a growing number of cases, holders of mortgages or home-equity loans are requiring borrowers in short sales to sign a promissory note, which is a written promise to pay back a loan or debt. Real-estate agents and attorneys say they have seen an increase in requests for promissory notes as mortgage companies look to short sales as an alternative to foreclosure.
Some experts say that mortgage companies may pursue leftover debt, or "deficiencies," in greater numbers as the housing market settles. Lenders are "doing everything possible to work with their borrowers and trying to bring stability back to the lending and real-estate market," says Marc Ben-Ezra, an attorney in Ft. Lauderdale, Fla., who represents mortgage companies in foreclosures. "However, the ability to get a deficiency judgment is a valuable right that I think lenders will pursue aggressively in the future as the market stabilizes."
Some borrowers are balking. Mack Ransom, a mortgage broker in Ashland, Ore., recently brought Countrywide Financial Corp. a short-sale offer for $279,000 -- well below the roughly $415,000 he owes on his two mortgages. Countrywide countered that it would accept a $310,000 bid, provided Mr. Ransom signed a $48,000 promissory note, he says. Mr. Ransom rejected that offer and is pursuing a different short sale.
"I would take the foreclosure and the credit hit over that," he says. A spokeswoman for Bank of America, which acquired Countrywide last year, declined to comment on a specific case, but said: "The company will ask the borrower to sign a promissory note during the short-sale process if dictated by investor guidelines."
This article has example after example of the different attempts lenders are trying to get some of their monies back. Another interesting point is that the promissory note may be buried in the contract - so it is something that should be looked out for.