Short Sale, Foreclosure and Strategic Default

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Thursday, June 11, 2009

Bank of America and now even HSBC are pursuing sellers for the defiicency

A Short Sale May Not Mean You're Home Free - WSJ.com
HSBC Finance, part of the North America unit of HSBC Holdings PLC, has implemented a one-year moratorium on the collection of deficiency balances for short sales and foreclosures that occur after April 1, "given the current economic environment," a company spokeswoman says.

Other mortgage servicers say their actions are often dictated by their contracts with investors or mortgage insurers. Bank of America Corp., for example, will "attempt to seek a promissory note whenever it is feasible" in a short sale "in the interest of protecting investors and shareholders from the losses," a spokeswoman says. In the case of a foreclosure, the investor or insurer "is generally the one who pursues the deficiency, but we do ourselves on some-bank-owned assets," she says.

Not every troubled borrower is hit with such a claim. Often, mortgage companies don't go after borrowers for unpaid amounts either because state laws prohibit or limit such actions or the cost outweighs the potential return. Borrowers subject to a deficiency may also elect to file for bankruptcy in an effort to have the debt discharged.

How a borrower is treated can depend on mortgage company policy, the size of the unpaid debt, whether the borrower has a job or other assets, or whether the home was bought as an investment. "If there isn't a financial hardship ... that's where the investor or mortgage insurer will go after the homeowner for more," says David Knight, a senior vice president at Wells Fargo & Co.'s home-mortgage unit.

A PMI Group Inc. spokesman says the mortgage insurer "primarily target[s] borrowers who are not experiencing hardship -- but those who simply elected to walk away from the property due to its decline in value."


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