Fannie Mae Loan / HAFA Short Sale Pending Promissary Note - Advice Welcome

[bschmidt]

Hello All-

I am soliciting advice on a pending Fannie Mae short sale.  My property has been on the market since February.  We have received two offers on it since then.  The first one expired before the loan servicer and Fannie Mae approved the terms.  The second one has been accepted, but they want a promissary note from me before they'll approve it.  Their first offer was a note for $17K over 10 years.  I did not agree to that and they came back with $5k, presumably at 5 years with no interest.  My agent also said I could refuse this one and threaten to walk away to see if they'd remove that requirement.  I am inclined to take the promissary note as long as it means that they will waive the deficiency, so I won't have that hanging over my head.  Works out to about $85 / month.

Has anyone had a similary experience with Fannie Mae?  If so, how did you handle it?  What would you do if you were in my situation?  I've found that very few people know much about how the HAFA program works and even less about the process that goes on behind the scenes.

Some background...  I bought the property in 2004 for $68k, before the height of the market in my area.  In 2009, my job relocated about 60 miles from my home.  I made a go of it for a while, just commuting back and forth (120 miles a day).  We tried to move once before in 2010, but the bottom fell out of the market during that time and the value of the property declined nearly 50%.  We ended up moving back and I started commuting again and did that again for two more years.  Now the cost of commuting is no longer worth it, my wife has some medical expenses and the doctors are located in the state of my job (not the home), so she was commuting 70-90 miles each way to appointments.  The property is worth about $30k and we owe $58k.  We moved closer to my job in June and the property has been vacant since then.  We did not have any late payments until we moved.  We cannot rent the property (condo rules prohibit it), so our only option is to sell but we don't have the money to cover the shortfall.  I applied for the HAFA program through my lender.  The mortgage is coming up on 60 days late now.

Any advice / input is welcome.  Thanks in advance!

[SoulMaster]

Do you have an attorney handling the SS? <--- I'm guessing no.

So:  Check the SOL on deficiency judgments AND on foreclosure in the property state.  Also, check to see if your current payment is more than 31% of current gross monthly income.  IF CP<=GMI*.31 AND you are in a deficiency state then yeah, you might want to sign the promisorry note to erase the 30K of debt you'd otherwise owe, but make sure that the contracts all say it will actually do this. (see next paragraph)

You're esentially asking the bank to break a legal, valid, and binding contract.  You should have an attorney doing all this negotiation for you (it's like your divorcing yourself from the bank).  At a minimum, PLEASE pay an attorney $250-$500 to review all the paperwork before you sign anything.  If it's right, it's just insurance... if it's wrong, the attorney should apply that to their retainer when they take over the case and get it all done the right way.

Note: if CP<=GMI*.31 then you show affordability and won't Q for HAFA as it currently stands.  Generally speaking, seller contributions (or promisarry notes) are requried when the seller shows affordability... and $5K is about right, especially if you're doing this all on your own.  The reverse is that the bank pays you Cash-For-Keys (moving expenses), which is obviously way better.

Oh, and as an aside, your agent is not qualified at all to perform complex contract negotiations.  If you live in a normal state (and def if you live in NV) he even had you sign a Short Sale Addendum where you initialed the paragraph that said "I will hire an attorney". (that's paraphrased).

Please see an attorney, even if it's just for a doc review.

-SM

Note:  I've been involved in >600 short sales on one level or another.  HAFA/In house/affordable/military and all lenders.  I'm speaking purely from experience and can't give legal advice except to tell you that nearly every short sale I've seen that's been handled w/o an attorney does not result in the best outcome for the seller.  The trouble is that the REA has incentive to get the house sold (that's what they get paid for) not to defend your rights/protect your interests.  So the REA who's doing the negotiation has an automatic conflict of interest... which is why they make you sign the thing that says you'll hire an attorney. 

Cheers,

-SM

[bschmidt]

Thank you so much SoulMaster.  You have given me very valuable information.  Just offhand, I'm pretty sure that the current payment is less than 31% of my GMI.  Of course, we have other mitigating circumstances as well as other debt obligations (whether that matters or not).  I do live in a deficiency state (WI).  I think I've pretty much mentally accepted the $5k promissary note as long as the deficiency is erased.  It's been a long road for us and we need to move on.  I will definitely be contacting an attorney though.  Thanks again for the info.  It's great to hear from someone who has been involved in this process.