Can you answer this question…How do you ensure that the bank doens’t seek a deficiency judgement? Can you write that in the offer contract somewhere or how do you write that in to ensure they can do it?
tanks for the help
Depends on the local law. You might want to check with your state’s real estate commission on how this is dealt with.
hi i am from detroit ,can you explain in general how this is done?
The first thing you should understand is that the decision to seek a deficiency judgment is really made before the loan is granted. In the U.S. I have heard of only three ways that a lender can recover their money:
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Strict foreclosure – where the property is sold as soon as there is a default on the part of the borrower. I think that only Vermont and New Hampshire allow this type of legal action.
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A judicial foreclosure - In a judicial foreclosure, a court decrees the amount of the borrowers debt and gives him a short time to pay. If the borrower fails to pay within that time, then the court will issue a notice of sale. This is a legal action and, as such, allows the borrower some latitude as to his legal defense. In addition, the borrower usually has a right of redemption – a time to pay off all that is due on the property including interest and fees, after the property has been sold. The borrower , or his heirs or estate, usually have a year to redeem the property and this fact makes the property somewhat unappealing to potential purchasers. The lender does have the right to seek a deficiency judgment but the real issue is if the borrower couldn’t pay the mortgage, how will he be able to pay the judgment?
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A Non-Judicial Foreclosure
The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A “power of sale” clause is the clause in a deed of trust or mortgage, in which the borrower agrees to the sale of his property to pay off the balance on a loan if he fails to meet the conditions of the loan. The power to sell the property is usually held by the trustee. When the borrower first got the loan the trustee was granted what is called a “naked” title to the property. The only right the trustee held under this title was to sell the property is case of default by the borrower. The borrower usually has until 5PM of the day prior to the date of the sale to redeem the property. In most states the borrower has the right to prove that the sale was not held correctly but this is usually not an issue of much importance.
In a trustee state (which Michigan is) mortgages are usually set up this way –
The TRUSTOR (the borrower) gives a note to the LENDER (the beneficiary)
The TRUSTOR gives a trust deed (legal title and power of sale given as security for the note) to the TRUSTEE.
The Trustee doesn’t do anything unless there is a default. Once the Lender advises the Trustee that there has been a default, the Trustee moves to sell the property under the appropriate laws.
So, there are three entities involved here: The Trustor, the Lender, and the Trustee.
In some mortgages there are only two entities – the Lender and the Trustor. If the Trustor doesn’t pay, the Lender can seek foreclosure in a court action.
So, to address your specific question – I don’t know. You would have to see the original loan documents to see what recourse the lender has. I would assume that the lender has what is called a non-recourse loan. A non-recourse loan is one in which the only option the lender has in case of default is to have the trustee sell the property. Once the property has been sold the borrower has no more obligations to the lender since the entire collateral for the loan was the property, not the person getting the loan.
A loan with recourse in one in which the lender can bring the matter to court and ask the court for a deficiency judgment. This could take awhile since the lender first has to bring it to court, advertise the property according to the local law, sell the property, and then go back to court and ask for more money.
I suppose that you can write anything you want into an offer – as long as it is not illegal. You would have to get them to agree to modify their original contract (the loan). My “gut” feeling is that if this is a recent loan there would be a trustee involved.
hi teksch.tanks for the information.this is good web,with good pepole like you.