My fiance has a property (which was his primary until last summer) In Minnosota. He owes a little over 600k on three liens.

Asked by Monique, Cook County, MN Thu Jun 30, 2011

Primary is with Citimortgage (agreed and approved short sale) for 275k. Second with Chase (which was suppose to be 3rd lien but Wells Fargo never filed lien on title) and 3 rd is Wells Fargo. My question is neither Chase nor Wells will agree to short sell unless he agrees to pay minimum 20% of their balances. Or 10% to close and he agrees to accept a deficiancy for the remaining. Its far more then he can afford and he has drained his savings trying to keep the property for the last 4 years. He stopped making payments last October. My question is are the banks really going after the deficiancies? Should we just stop and go for bankruptcy and even so in the Minnosota will it do him any good with the 2nd and 3rd?

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16
Cameron Piper, Agent, Forest Lake, MN
Thu Jun 30, 2011
Monique,

Keep in mind one thing, liens are different than promissory notes. The lien against the property must be released in order to convey clear title to the buyer and the only person that can release the lien is the lienholder by granting a satisfaction. The promissory note is the debt instrument that you signed at closing and is what obligates you to pay the bank. The bank can release their lien but retain their right to have your fiance pay them.

Wells Fargo shouldn't be a player if they don't have a properly filed lien against the property. You can sell without their permission, but there is still a contract that says you have to pay them. You can choose to deal with that however you like but ultimately they have no say in the short sale if what you say about their lien rights is true. Citi does have a right to approve or deny the short sale based on what you have stated so you will need to work with them.

Keep in mind that with deficiency judgements the note holder has the life of the note to call the note due (if you had a 30 year mortgage and you paid for 5 years - they would have 25 years to call the note due). From the date they call the note due there is a 6 year statute of limitations. Ultimately they aren't likely to chase him right away as they know that if they push him now bankruptcy would be a very tempting option, however they could wait a good many years until he is back on his feet and then hit him with a judgement.


In MN, the secondary promissory notes (Wells and Citi) are not extinguished in a foreclosure. Sadly I am going to have to disagree with Matt here.

There are too many variables to be able to give a complete answer here. You really need to talk to an experienced attorney in this matter. I refer all of my short sale and foreclosure clients to Steve Nash. You can check him out at his website at: http://www.nash-law.com

Cameron Piper
Coldwell Banker Burnet
licensed MN Broker
Web Reference:  http://www.campiper.com
1 vote
Christopher…, Agent, Bloomington, MN
Fri Jul 1, 2011
Home Ownership Center is such a great resource I am glad to see other agents forwarding this information over to you. I have to agree with Cameron yet again that I have not seen principal reductions either for loan modifications.

There is some type of Emergency fund Obama put into act and is being piloted in some states for this however. I am not sure how it all works since Minnesota is not part of it.

You are not that much different than many other homeowners who could afford the monthly payments at present market value. It seems practical but not yet seen as a solution by the powers at be.

If you can't get a full satisfaction on the short sale, or it is determined that Bankruptcy would be a more prudent option than doing a release you have your answer. You will have to most likely sign a prom note, and although you will get very good terms (and should be able to dramatically cut the balance you owe) an attorney and/or accountant are the ones to answer it not me.

I can tell you what is the most likeliest outcome for the short sale but NOT whether it will be a prudent action then filing for bankruptcy or any other action outside of my realm of service.
0 votes
Cameron Piper, Agent, Forest Lake, MN
Thu Jun 30, 2011
Monique,

I hate to be the bearer of bad news but loan modifications are a joke. Banks don't reduce principle balances they simply extend the terms of the loan and grant a teaser rate on the front end to make the new payment affordable. I just looked over a modification proposal for a client last week. Each bank is different and will have different policies, but I have yet to hear of any simply granting principle reductions and rewriting a new loan for the lower balance.

Cameron Piper
Coldwell Banker Burnet
licensed MN Broker
Web Reference:  http://www.campiper.com
0 votes
Monique, Home Seller, Cook County, MN
Thu Jun 30, 2011
As I am sitting here, I am curious to know if anyone thinks maybe short sell is not going to be a option at all for his situation. I mean honestly he owes 610k on three loans for home appraised at 275k. Maybe what we should do is go back to Citimortgage and see if they will renegotiate the terms of the balance we owe them which is 300k to a reasonable payment. Then maybe go back to the 2nd and 3rd and reach a payment or settlement agreement also for a fixed amount and term. Honestly if we could keep this home at a payment of $1500.00 we could probably swing it. The home is far superior to the one we have in Texas now. It is a 5000 square foot home on a lake that he built himself. I mean we could probably get some renters to make half that in the area it is located. Has there be any luck on banks reducing the balances down so that the homeowner can keep it? Any other ideas?
0 votes
Monique, Home Seller, Cook County, MN
Thu Jun 30, 2011
I will call the Minnesota Home Ownership Center as well as read up on the statue that you sent. Thank you!
0 votes
Cameron Piper, Agent, Forest Lake, MN
Thu Jun 30, 2011
The actual statute that refers to deficiency judgements in a foreclosure:

https://www.revisor.mn.gov/statutes/?id=582.30

A fact sheet from the Minnesota Home Ownership Center on deficiency judgements in foreclosure:

http://www.hocmn.org/Stock/Editor/file/FACT%20SHEETS/FactShe…

Cameron Piper
Coldwell Banker Burnet
licensed MN Broker
Web Reference:  http://www.campiper.com
0 votes
Aaron Dickin…, Agent, Champlin, MN
Thu Jun 30, 2011
Call the Minnesota Home Ownership Center. They are a nonprofit that will provide expert information and advice free of charge. http://www.hocmn.org
Web Reference:  http://www.whybuyreo.com
0 votes
Christopher…, Agent, Bloomington, MN
Thu Jun 30, 2011
You are correct it does not matter who initiates the foreclosure process.

your redemption period will be up typically 6 months after the sheriff sale. I am not sure if this has happened yet or not but just an FYI if you don't know.

I think Cameron might be on to something with one of your lenders. Finding an attorney that actually negotiates short sales could actually solve a lot of problems for you. I sometimes do this with my trickier files.
0 votes
Monique, Home Seller, Cook County, MN
Thu Jun 30, 2011
I appreciate the responses and I think his best option is to discuss with a attorney first. I think both Wells Fargo and Chase are going to play hard ball as they probably believe they can try and wait it out. I really wished he was in California it would have been much easier as I had went through this on my properties and spoke to my accountant and attorney before I filed bk. Which was the only option that made the most sense. The Chase rep gave me bad advise which I knew he actually had no idea what he was talking about, he advised me Minnosota can not file for deficiancies (or maybe he thought I stupid enought to believe it). Wells Fargo rep was actually pretty helpful in at least trying to go over each option and I knew enough that he was probably right on most of what he said. So where I need to be clear on is if this is foreclosed by the first (I am still confused) either way the 2nd and 3rd have the right to pursue my fiance. It does not seem that the 2nd and 3rd are in any hurry to start the foreclosure as it has been since October and they are just now trying to reach us to make a payment arrangement.
0 votes
Matt Jahr, , Sartell, MN
Thu Jun 30, 2011
You know Cameron, I believe you are right. I just cross referenced some previous emails from my attorney on a very similar transaction from a couple months ago. His stance was that it is "unlikely", but not impossible for the junior lien holder's to do anything.

Who knows how aggressive they would be a year or two from now after the dust settles from the foreclosure crisis. Thank you for pointing that out to me; I have learned something new today.
0 votes
Christopher…, Agent, Bloomington, MN
Thu Jun 30, 2011
thanks for clarifying that Cameron you are spot on.

Matt I can just tell you that the attorneys you have spoken to are wrong. junior liens are recourse loans it is that simple. Cameron explained that a little more effectively than I did.

I do short sales & I negotiate these. It is not illegal to simply let people know how short sales work and all the variables attached to this transaction.

"In order for the junior liens to collect a deficiency, they would need to foreclose on the property judicially, which almost never happens. Typically the foreclosure will be done by the senior leinholder, and the subordinate liens will be wiped out."

are you giving legal advice by saying this? Although it is incorrect you are not telling someone bankruptcy is a more prudent option or vice versa with completing a short sale.

I don't mean to go on a rant or anything. I believe we all agree Monique needs to seek legal advice (and maybe someone else to negotiate this) but I will never persuade her or my clients to chose a short sale over bankruptcy or anything like that.

But if I know what an attorney is saying is wrong (believe it or not this happens more than you think) I have no problem saying it, as long as it directly relates to a short sale situation and everything that goes with it on the lender side.

Ah I am sure this debate will go on forever, but just like Monique needs to do her own due diligence us real estate agents and brokers must do our own to make sure the advice we give is correct.
0 votes
Cameron Piper, Agent, Forest Lake, MN
Thu Jun 30, 2011
Matt,

The foreclosure by advertisement only wipes out the foreclosing party's promissory note. The statute is however silent about what happens to the junior lien holders.

I agree we should not be dispensing legal or tax advice and that one should also refer an attorney or accountant. However, we are worthless as agents if we spend all of our time in the CYA of our business and not helping people with real estate matters.

Cameron Piper
Coldwell Banker Burnet
Licensed MN Broker
Web Reference:  http://www.campiper.com
0 votes
Matt Jahr, , Sartell, MN
Thu Jun 30, 2011
I am under the impression that junior liens can only get a judgment if a foreclosure was done judicially (not by advertisement which is what is common 99% of the time), which is what I have been told by several attorney's. I think there are so many variables to every situation, it's hard to say without really getting into it. This is also my agents and brokers are advised not to give legal advice, since we are not licensed or qualified to do so.
0 votes
Christopher…, Agent, Bloomington, MN
Thu Jun 30, 2011
I will have to politely disagree with both Matt & Deborah, although I will say you should already be talking to a Bankruptcy attorney like yesterday!

1) Minnesota is a Non-Recourse state. This means the 1st has no "recourse" to come after you for the deficiency between what was bid at the sheriff sale & the amount you owe them.

2) Junior liens will get whatever type of proceeds is left over from the sheriff sale in order of their position. Since this is a short sale situation you can imagine they will get probably zero and by "wiped out" in the end for clear title.

3) Our Non-Recourse foreclosure laws are once again for 1st only. Junior liens have every right to come after you for a deficiency. They will have to sue you and it will be in the form of a judgement. I can only give you my personal account for what I see in short sales, but Wells Fargo is one of the most aggressive lenders when it comes to this.

4) Because this is not your primary residence anymore I would also be worried about paying taxes on any cancelled debt done through a short sale. Once again, this should have been talked about with an attorney already.

5) That is about all I can tell you simply because I specialize in short sales so I have a very high understanding on this topic. I can just tell you I don't like a short sale in this situation.

you do actually have quite a bit of leverage in this situation and both lenders would willing to settle for incredibly less. There is a way to get both of them to agree for a "full satisfaction" so they have no recourse out of this, but I think you need to talk to a attorney before proceeding any further. I am not in the business of telling people to file for bankruptcy so do not take my opinion to mean so.

You may want to check out a recent blog article I did on the tax question with short sales.

Good luck!
0 votes
Matt Jahr, , Sartell, MN
Thu Jun 30, 2011
Hi Monique. In order for the junior liens to collect a deficiency, they would need to foreclose on the property judicially, which almost never happens. Typically the foreclosure will be done by the senior leinholder, and the subordinate liens will be wiped out.

An experienced short sale agent should be able to navigate this for you to get all 3 mortgages to agree to a short sale, and in the event that you cannot, bankruptcy may be your best option. As always, you should consult an attorney on both of these matters.

If you need help with the short sale, unless you're working with another agent, please let me know.
Web Reference:  http://www.tech5mn.com
0 votes
Voices Member, , Rice, MN
Thu Jun 30, 2011
Monique,
That is a question for your attorney. There is no absolute answer to whether or not banks are going or are not going after deficiencies; it depends on each circumstance.

I recommend finding a real estate attorney that can advise what to do with the three lenders.
0 votes
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