Can the bank require this???

[Drazil65]

OK, so we get back from being away this weekend and I check my emails to find an email from our mortgage bank. We rec'd a short sale offer last week for $13,000 below the mortgage payoff and the loan officer email to say they will approve it this week (ok, yeah!) BUT then goes on to say that they will want us to sign a confession of judgement to say that we are still reponsible for the deficiency??? Is this right? They know we were discharged in March Chapter 7 so why are they asking for this?

I am going to talk to our attorney tomorrow but its bugging me tonight!

[keepsmiling]

Sounds like a POUND SAND moment to me
According to Wikipedia, these are highly controversial in general, illegal in some states. I suspect your debtor-friendly state might be one of them.

http://en.wikipedia.org/wiki/Confession_of_judgment

Really, the house is the bank's problem now. NOT yours.

[tobee43]

unfortunately yes.

NC is a deficiency state

therefore, a deficiency judgment may be obtained when a property in foreclosure is sold at a public sale for less than the loan amount which the underlying mortgage secures. deficiency judgments are referenced in North Carolina General Statutes, Chapter 45, Article 2B §45-21.36 and the mortgagor has the right to prove the fair value of the property as a defense to any deficiency based on the sale price.

however, if you listed your mortgage on your petition and you did not reaffirm the deficiency amount would be covered by along with everything else discharged. so the bank cannot go after an amount which was already discharged in your bankruptcy, of course unless you sign that paper and agree to assume the debt.

[HHM]

Note, that is fairly standard in deficiency states. Generally, if your mortgage broker points out to them that the debt is discharged, they may back off.

However, I don't think it is a clear cut violation of the bankruptcy discharge (aka, not illegal). Reason being, you are receiving new value...removal of the lien. But in any event, go back to the bank and advise you will not sign it. However before even that, be sure to read it. Some of these confessions will have language that talks about prior bankruptcy, so this may not be a big deal.

[Drazil65]

Thank for the replys. Attorney said pretty much same thing as all the responses here. We did not reaffirm mortgage so we are good. Our attorney did say though he wanted to see it if they send it because he has seen where banks will use this as a way to try to put pressure on people to sign. Telling us that they will approve the short sale BUT we will be expected to sign the COJ, he has seen it many times so he wants to be on top of it in case it appears to be going in that direction.

I didn't think that an offer only $13,000 less than mortgage payoff was bad. They would be stupid to blow the deal and get nothing in a foreclosure case. But if they do that will be more time we will have to stay here and save more money.

[HHM]

The bank negotiator is just following standard procedure. The ones I have actually seen amount to more of a disclosure that you "could be liable,". That is why you should read it. Signing and acknowledging a disclosure is not a big deal. Now, if the document really is a Note whereby you agree to pay the deficiency, that is a different matter, that you definitely don't sign.

[btbeme]

They would be stupid to blow the deal and get nothing in a foreclosure case.

You would be amazed at the deals that many (most?) banks have with the Feds after all the bank failures, consolidations, etc. In many, many cases a bank will make more on a foreclosure than they would via a short sale. No kidding. I can absolutely guarantee you that the bank will run the numbers on any short sale situation and compare it to what they would net after foreclosure - since each scenario will generally qualify the bank for a federal reimbursement of loss. It is really nothing more than a cold hearted numbers decision - whichever scenario will net them the smallest loss or the largest gain (even in a foreclosure auction) - that is the avenue they will take.

Trust me.

[TBA]

You would be amazed at the deals that many (most?) banks have with the Feds after all the bank failures, consolidations, etc. In many, many cases a bank will make more on a foreclosure than they would via a short sale. No kidding. I can absolutely guarantee you that the bank will run the numbers on any short sale situation and compare it to what they would net after foreclosure - since each scenario will generally qualify the bank for a federal reimbursement of loss. It is really nothing more than a cold hearted numbers decision - whichever scenario will net them the smallest loss or the largest gain (even in a foreclosure auction) - that is the avenue they will take.

Trust me.

We experienced this with our SBA loan. The bank wouldnt even consider a short sale because the mortgage was SBA backed, or so they told us in a round about way.

[HHM]

We experienced this with our SBA loan. The bank wouldnt even consider a short sale because the mortgage was SBA backed, or so they told us in a round about way.

That is actually fairly standard policy. SBA loans have specific criteria about what happens when the note goes into default. For SBA loans, the bank is simply looking to satisfy the criteria so IT can get paid its guarantee by the SBA.

[Drazil65]

Update: After I "reminded" the bank that the mortgage was discharged in the chp 7 they came back and said "there will be no deficiency", signed off on the short sale and we close in October. This is a local smaller bank so we were dealing with the mortage loan officer directly. Now I wish our rental property (out of state) would get to foreclosure (BOA, I know, I know), they got the summary judgement earlier this month so a little closer I guess...

[HHM]

Update: After I "reminded" the bank that the mortgage was discharged in the chp 7 they came back and said "there will be no deficiency", signed off on the short sale and we close in October. This is a local smaller bank so we were dealing with the mortage loan officer directly. Now I wish our rental property (out of state) would get to foreclosure (BOA, I know, I know), they got the summary judgement earlier this month so a little closer I guess...

See, no problem.