I’ll call them Fannie Freddie in this post. Freddie Fannie are different quasi-governmental entities that own mortgages. For our conversation, they are very similar in the way they handle short sales.
First, you need to find out if Fannie or Freddie own your loan.
Fannie Mae has a website with a lookup tool. Go to this site to research if your loan is owned by Fannie Mae: www.fanniemae.com/loanlookup/.
Freddie Mac has a lookup tool here: ww3.freddiemac.com/corporate/.
If your loan is owned by Fannie Mae, then you usually do not have to worry about a deficiency. Fannie Mae’s official policy is that they will forgive the debt if a seller has a genuine hardship.
Fannie Freddie’s policies are basically the same. They state that they will pursue a short sale seller if they have they can afford to make the payment or it is an investment property. You need to keep this in mind if you are strategically defaulting. One problem with some of these short sales is that the loan was insured by Private Mortgage Insurance also called PMI.
The PMI companies have the ability to approve or veto the short sale offer. Many PMI companies ask for a promissory note before they will approve a short sale. The good news is that the promissory note is usually less than the amount lost. For example, we recently saw a lender lose over $100,000 on a short sale. They asked the homeowner for a $20,000 promissory note.
Are you willing to pay $20,000 to walk away from $100,000 in debt? I think that’s a good bargain. If you have a Fannie or Freddie Loan and have a genuine hardship, then you can be pretty confident that you have a very good shot at being able to walk away without a deficiency.