This is the 6th tip of “10 Questions You Should Ask About Florida Short Sales” eBook, which is available as a FREE download.
Lenders occasionally require a new obligation in exchange for approving a Florida short sale. This new obligation is typically in the form of a promissory note.
Most promissory notes required after short sales are unsecured debt obligations – not unlike the note you signed for your original home loan but without the mortgage to secure the debt.
Unsecured debt is debt that is not tied to or secured by collateral like personal or real property. There is only the borrower’s personal obligation to repay the amounts contemplated in the note.
In our experience, most promissory notes have been nominal relative to the amounts owed under the original debt. Often, the duration of the note is limited to a few years; and the interest rate is usually zero or very low.
The principal balances of the notes vary greatly, and depend on the balance of the original loan and the borrower’s ability to repay on that future obligation. Like most everything, these obligations are typically negotiable. A lender may start by asking for $10,000 and ultimately accept $1,000.
Requests for promissory notes (and cash contributions, as will be discussed later) are much more prevalent when the loan in question has mortgage insurance. Oddly, the Florida short seller or borrower may not even know there loan is covered by mortgage insurance.
Other times, it will be clear since a portion of their monthly payment may be going toward that insurance. In either case, if mortgage insurance is involved in your Florida short sale transaction, you should definitely anticipate dealing with a request for a promissory note.
If you have any questions about your promissory note, or you would like to be referred to a Certified Public Account to find out more, please don’t hesitate to call me at (239) 985-4142 or contact me online.