What % of short sales result in promissory note?

[Stephen Gathman]

I was told recently by my realtor that all short sales she has seen closed resulted in the seller having to come to the closing with a promissory note.

We lost a recent deal due to this. Do most SS result in this? If so, how seriously should this note be taken by the seller?
Thanks

[Scott Hubbard]

Originally posted by Stephen Gathman:

......... that all short sales she has seen closed resulted in the seller having to come to the closing with a promissory note.

This is completely false! Promissory notes are considered by the lender, but are rarely enforced in my experience. However, there are certainly some scenario's which will lend itself well to a lender requiring a promissory note.

1. Deficiency states: If the property is in a deficiency state, the lender may want to pursue a note in lieu of filing a judgement for the deficiency. I think this can be valid option for a seller when avoiding a judgment is important to them.

2. PMI: When there is Private Mortgage Insurance, you can expect the insurer to want to be paid back and will often times require a note.

3. FHA/VA: Although this is not a certainty, when the government has paid out a claim to the lender, they may require a note.

4. Investment Properties: If the property being sold short is an investment property, you tend to have a higher instance of a note being required.

A formula of success I use to counter a promissory note is to prepare the seller for the possibility before signing. During the negotiation process, have the seller save as much money as possible and make a cash contribution at closing in lieu of a note.

You need to know, prior to signing a client, what to look for and screen those leads for situations that may result in a seller disincentive.