If you have a client who is considering a short sale and has their loan with Wells Fargo, be aware that Wells Fargo has consistently been issuing a short sale approval letter that does NOT release the homeowner from the deficiency balance.
Wells Fargo is one of the nation’s largest lenders, and as a result, we have negotiated numerous short sales with the bank. Recently we began receiving approval letters for short sales with new language that specifically states they will not release the homeowner from the deficiency balance.
The language in the Wells Fargo approval letter reads as follows:
With the exception of a Home Affordable Foreclosure Alternative (HAFA) closing, nothing in this Demand Statement or in the release of the mortgage shall waive the right to seek a deficiency under the loan documents or any of its other rights thereunder, and the obligations evidenced by the note shall remain in full force and effect until paid in full.
In other words, the homeowner may still be legally on the hook for the balance owed after the short sale.
We have communicated with the Wells Fargo negotiator to better understand why they instituted the policy and to determine the potential impact on our clients. Here is their response:
To: WPS Admin
Per the recent Attorneys General ruling, Wells Fargo Home Mortgage, as the servicer, cannot waive the deficiency on behalf of the investor.
However, Wells Fargo does waive deficiency for its own portfolio. Just recently, Freddie Mac has agreed to waive deficiency for its mortgages and we expect most of the industry to follow their lead. We are in negotiations with all our investors and we hope to be able to change the language in the future, as this all gets straighten out between the servicers and the investors, but at this time we can’t alter the letter, per our legal department.
Keep in mind the letter does not state that a deficiency will be sought, only that the option is there. Seeking deficiency for most investors is simply too costly. We are in negotiations with all our investors concerning this matter, but nothing has been agreed upon at this time. Please let the closing coordinator know if the property needs to be removed for the short sale process.
So, even though Wells Fargo CAN come after a homeowner for the deficiency, they are saying it is unlikely that they will. This should be a red flag to any homeowner.
As a broker, what should you do?
At this point, there is no real solution. Your responsibility as a broker is to make sure that your client fully understands the terms of the short sale agreement and potential implications they may have. Homeowners should also be advised to consult an attorney regarding how these terms will affect their own situation. (We offer a free consultation with an attorney as part of our service to clients.) As a broker, you cannot provide legal advice, but you can take steps to protect yourself and the homeowner. We have our clients sign a)statement that states: I understand that my short sale agreement does not include release of the deficiency, that the lender may seek to collect the deficiency in the future, and that I have been advised to seek legal advice regarding the terms of short sale approval.
Now, more than ever, brokers need to be aware of the benefits of short sales for their clients. If you have questions about how to best proceed with a short sale, call Richard Eastern at 206-612-5541 or email us.