George M. Gingo, P.A.

Attorney at Law
P.O. Box 838, Mims, Florida 32754
321-264-9624 (Office) www.gingolaw.com 321-383-1105 (Fax)

February 8, 2010

BROKERS AND AGENTS:

RE: Short Sale Deficiency Issues – translation: broker and client liability.

Each lender addresses the deficiency judgment issue differently. Once the short sale has
been approved, the lender will send a letter listing all the requirements of the approved
transaction. This document most likely will not describe how your client is protected from a
deficiency judgment. In this letter, some lenders will reserve the right to proceed in the future to
recover the deficiency amount, some will not address the deficiency at all and some will require
that the seller sign a "No Release" agreement to obligate continued payment on the note once the
satisfaction of the mortgage has been recorded. Each of these three lender positions carry
potential liability for a deficiency judgment to your client, and consequently to you if not
addressed properly. There are only two courses of action to avoid liability to you – either the
client's interests are protected from a deficiency judgment or you put your client on written
notice of the fact that a deficiency judgment is a real possibility.

Absent any language otherwise, the lender is generally entitled to a deficiency judgment
as a matter of right to the extent that the fair market value of the property at the time of sale was
less than the sale price. Ideally the deficiency should be addressed in the short sale agreement.
There should be language that the lender accepts a short sale in exchange for a waiver of the
deficiency judgment. If one is not able to directly address the waiver of a deficiency, there may
be other options that give some measure of defense against a potential deficiency claim– albeit,
these may not ultimately be sufficient to protect your client – and you – from liability. Such as,
modifying line 504 and/or 505 (if there is a 2nd mortgage) of the HUD. To do that, change the
standard language from “Payoff Lender Loan/Mortgage” to “Payoff Lender Note and Mortgage”.

Additionally, on all transmittal letters leading up to the deal, you should indicate that the
proposed short sale is contingent upon the lender accepting the net proceeds in full satisfaction of
both the note and the mortgage. Between the transmittal letter setting forth the terms of the
“offer” and the lender’s acceptance of a HUD that clearly states net funds are to payoff both the
note and the mortgage, one has a good position in equity to defend a subsequent effort to defeat a
deficiency claim. The short sale authorization letter should reference a “satisfaction” (and not
just a “release”) of the note and mortgage and also should not specifically reserve the bank's right
as to a deficiency. As there may be a tax liability too, the selling owner in a bank approved "short
sale" can try to close the sale as a compromise and an accord and satisfaction in which the bank
that approved the short sale has agreed that not only will no deficiency be sought, but that an IRS
form 1099-C will be sent by the bank to document the forgiveness of the debt. There is a sample
letter to document the accord and satisfaction which is attached.

There are a few equitable defenses that may be available to your client. The judge's
equitable discretion is not unlimited or arbitrary – rather, it must be exercised along established
legal guidelines. If short sales approved by the banks in the absence of a waiver of the
deficiency become a regular business practice, logic suggests that there will be an increasing
equitable trend to deny deficiencies for debt collection.
 George M. Gingo, P.A.
Attorney at Law
P.O. Box 838, Mims, Florida 32754
321-264-9624 (Office) www.gingolaw.com 321-383-1105 (Fax)

Neither the Florida Association of Realtor's Short Sale Addendum nor the FLA/BAR
Short Sale Addendum specifically address a complete discharge scenario. It is expected that
these will be modified to add "additional remarks" language which essentially states that the
short sale contract is contingent upon the bank's approval of all pertinent contract terms,
including a complete and total discharge of any and all deficiency amounts owed. Even this may
not be sufficient to avoid all potential liability by the client.

There are some specific facts to be answered regarding the the taxable nature of the short
sale Form 1099C. The first fact issue is whether the seller was using the home as a primary
residence. If yes, then IRC Sec. 121 protects the first $250,000 of gain on the sale, if any exists.
If not, then there is no exemption. Recent IRS actions have created some additional protection
for the homeowner if the property was the primary residence of the seller. Usually there is zero
tax effect to seller if it is the seller's primary residence. The second fact issue is what is the
seller's adjusted basis in the property sold? You cannot determine gain or loss on a sale if you
cannot determine the adjusted basis (purchase price + cost of improvements + costs of sale
transactions - depreciation, if any). The third fact issue is what is the deemed sales price?
Generally, the sales price in a short sale equals the amount of mortgage debt forgiven when the
property is sold. Usually the seller's sales price on the HUD-1 is the starting point for a sales
price determination, then you add the amount of the debt forgiven in the short sale to get the
combined reportable sales price. Last, you compare the sales price (HUD plus forgiven debt) to
the adjusted basis to determine whether gain or loss is the result. It's that simple.

Clearly, the client must be placed on written notice that there is no guarantee as to
whether the bank will proceed on the deficiency. If liability issues arise, bankruptcy may be an
option. When confronted with a post-short sale deficiency judgment in the absence of written
notice to your client of the deficiency issue, your client may question the propriety of the short
sale at all since the only financial beneficiary thereof was the broker.

Sincerely,

George Gingo, Esquire

 George M. Gingo, P.A.
Attorney at Law
P.O. Box 838, Mims, Florida 32754
321-264-9624 (Office) www.gingolaw.com 321-383-1105 (Fax)

February 8, 2010

Attention: Arithia
Law Office of David J. Stern, P.A.
900 South Pine Island Road - Suite 400
Plantation, FL 33324-3920

Re: Your File: XXXXXXXX

Case No.: 08-CA-1111
Case Name: Aurora Loan Svc. v. XXXX,
Property Address:
Subject: Short Sale Closing XX/XX/2010

Ladies and Gentlemen:

My office and I represent Defendant XXXX in the above-referenced foreclosure case.

Attached please find a copy of the “short sale” letter of approval given by your client, Aurora
Loan Services, the lender in this case, and a copy of the Form HUD-1 for the closing set for
tomorrow, XX/XX/2010.

My client has agreed to close this sale as an accord and satisfaction, based upon your
client’s approval, wherein your client agrees that the unpaid balance of the obligations at issue in
the foreclosure shall be forgiven, and the seller will be given a Form 1099-C for the unpaid
balance. I want to be careful and make sure that your office is aware that your client has
approved this short sale transaction, and that your client has agreed that this case will be
dismissed with prejudice upon closing this sale. If I do not receive an objection from your office
prior to the closing which is scheduled in this matter, then my client shall be conclusively
deemed to have closed this transaction with your client’s permission and instructions as a
compromise, and an accord and satisfaction.

Thank you for your consideration. If you have any questions or if you need any additional
information, please do not hesitate to contact me.

Very truly yours,

George Gingo

cc: XXXX, Esquire (Fax 239-282-0069)

Client
 George M. Gingo, P.A.
Attorney at Law
P.O. Box 838, Mims, Florida 32754
321-264-9624 (Office) www.gingolaw.com 321-383-1105 (Fax)

LEGAL NOTES ON DEFICIENCY:

Once deficiency proceeding has been ‘initiated,’ election of remedies has been made and
creditor cannot just begin execution on the judgment on the note - must finish deficiency
proceedings. Century Group v. Premier Financial Services, 724 So. 2d 661 (Fla. 2nd DCA 1999).

Granting of deficiency judgment is rule rather than exception, unless there are facts and
circumstances equitably justifying denial. F.D.I.C. v. Hy Kom Dev. Co., 603 So. 2d 59 (2 DCA
1992). Mortgagor has burden to show property value more than debt, not other way around.
Addison Mortgage. Co., Inc. v. Weit, 613 So. 2d 104 (3 DCA 1993). BUT SEE Coral Gables
Fed. S&L v. Whitewater Ent., Inc., 614 S0. 2d 682 (5 DCA 1993), saying secured party has
burden to show fmv less than debt, citing Norwest Bank Owatonna, N.A. v. Millard, 522 So. 2d
546 (4 DCA 1988).

The granting of deficiency judgment is within sound judicial discretion of trial court.
702.06, Fla. Stat. (1991). Fair market value is "amount that would be paid for property to willing
seller, not compelled to sell, by willing buyer, not compelled to buy, considering all reasonable
uses to which property is adapted." (@ 521-522) Discounting is important part of appraisal
process. The fair market value must be assessed as of date of forecl sale. (@ 523) Savers
Fed. Savings & Loan Assoc. v. Sandcastle Beach , 498 So.2d 519 (Fla 1st DCA 1986). An
appraisal from one year prior to the sale was held "irrelevant" in Mizner Bank v. Adib, 588
So. 2d 325 (4 DCA 1991). The value should not be reduced by mortgagee's actual costs of sale
to 3d party after forecl sale. Brown v. Gibson, 593 So. 2d 1057 (2 DCA 1991). Testim about
what highest and best use of property should be, as opposed to what it is in fact, will not justify
denial of deficiency. F.D.I.C. v. Hy Kom Dev. Co., 603 So. 2d 59 (2 DCA 1992). Real estate
taxes owed may be deducted from value. First Union v. Goodwin Beach Partnership, 644 So. 2d
1361 (5 DCA 1994); Chidnese v. McCollem, 695 So. 2d 936 (4 DCA 1997); Edwards v.
F.D.I.C., 746 So. 2d 1157 (Fla. 4th DCA 1999).

The bid price "is not conclusive as to value of property in subsequent law action for
judgment at law on note." (@ 13) R.K. Cooper Const. Co. v. Fulton, 216 S.2d 11 ( Fla. 1968)
BUT mortgagee cannot claim fmv is any LOWER than bid price. Therefore, if total judgment
amount bid in at sale, there can be no deficiency, even though the mortgagee had spent money
(not included in judgment) for taxes, first mortgage payments, etc. Warehouses of Florida, Inc. v.
Hensch, 21 FLW D972 (5 DCA 1996). Also, bid price presumed to be fmv in absence of
contrary evidence. Sullivan v. FDIC, 634 So. 2d 794 (3 DCA 1994).

The owner may not testify as to value if he lacks suffic familiarity with property to give
permissible opinion. Sun Bank/North Florida v. Edmunds, 624 So. 2d 753 (1 DCA 1993).

That mortgagee is purchaser at sale, standing alone, does not bar deficiency judgment.
Taylor v. Prine, 132 So. 464 ( Fla. 1931)

Deficiency is for all owed, not just principal. FDIC v. Circle Bar Ranch, 450 So.2d 921
(Fla 5th DCA 1984)
 George M. Gingo, P.A.
Attorney at Law
P.O. Box 838, Mims, Florida 32754
321-264-9624 (Office) www.gingolaw.com 321-383-1105 (Fax)

Deficiency judgment proper v. co-makers also. Granting deficiency judgment "the rule,
not exception." "Exercise of discretion to deny deficiency decree must be supported by disclosed
equitable consids which constitute sound and suffic reason for action." Baxter v. Kobs, 451
So.2d 955 (3 DCA 1984). If owners entitled to credits to reduce deficiency judgment, court
should not deny deficiency on equit principles. Kornfeld v. Diaz, 634 So. 2d 799 (4 DCA 1994).

A subsequent mot "or other pleading" for deficiency is procedurally suffic. See also
Garner v. Slack, 150 So. 750 ( Fla. 1933), Grace v. Hendricks, 140 So. 790 ( Fla. 1932). Where
the attorney of record in the foreclosure suit was served with the motion for deficiency judgment
3-1/2 months after the certificate of title was issued, and the final judgment had retained
jurisdiction for deficiency decrees, that was sufficient; no new service of process was necessary.
Estepa v. Jordan, 21 FLW D1872 (5 DCA 1996). The court noted that the mortgagors had actual
notice of the proceeding in this case.

Rule 1.420 (dismissal for inactivity) applies to post-judgment (deficiency) proceedings in

mortgage foreclosures. The time is measured backwards from the date of the motion, not
forwards from the date of the final judgment. Frohman v. Bar-Or, 660 So. 2d 633 ( Fla. 1995).

George Gingo