Waive: To desist from asserting or using a right or claim.
Waive: To intentionally or voluntarily give up or relinquish a right, benefit or privilege or engage in conduct justifying a conclusion that a right has been forfeited.
Asking the Lender to Waive the Deficiency in a Foreclosure
Homeowners facing foreclosure will often encounter the word “waive,” meaning to knowingly relinquish a right, which can be used in many circumstances.
For instance, if a homeowner submits to a short sale, the bank may waive the deficiency on the amount still owed on the mortgage, which allows the homeowner to walk away debt free. In a short sale, In a short sale, the property will be sold for less than what is owed. The difference between the outstanding balance on the mortgage and the short sale amount is the deficiency. In most states, the bank can file a lawsuit to recoup the deficiency amount, though when a homeowner is willing to submit to a short sale, they can request an approval letter from the lender that states that they are willing to waive the deficiency. It is important to get the waiver in writing.
Documents, such as lien releases, cannot be submitted as a waiver of deficiency. For home-equity loans or second mortgages, the homeowner must submit letters from the lenders that state the deficiency has been waived. If the bank chooses not to authorize the short sale price, the deficiency waiver or any other terms related to the short sale, the homeowner can forego the agreement. Even if the mortgage deficiency is waived, the homeowner may still be on the hook for taxes on the amount waived, unless they are covered by the Mortgage Forgiveness Debt Relief Act of 2007, which has been repeatedly extended by the federal government.
A sample deficiency waiver agreement states:
This Deficiency Waiver Agreement (“Waiver”) is provided to (“Name”) (known as “Borrower(s)”) by (“Name”) (known as “Mortgagee”) in connection with the promissory note (“Note”) secured by the property located at (“Address of Property”).
Mortgagee HEREBY CANCELS any remaining indebtedness excluding any contribution required from the Borrower under that certain Note and Mortgage, Deed of Trust, or Security Deed (the “Security Instrument”), dated (“Month/Day/Year”) provided that the [indicate either “short sale” or “deed-in-lieu of foreclosure”] is completed in accordance with the approved terms and conditions.
According to Harrington Law Associates in Florida, homeowners should defend their rights every step of the way during a foreclosure process.
“Putting up a good fight makes the case long and expensive for the lender. If nothing else, that will dampen their spirits considerably if/when it comes to deciding whether to go after a deficiency. That is the worst-case scenario. More than likely it will not come to that because we will be able to negotiate a short sale or deed-in-lieu with favorable terms for you before then. Specifically, we will ask the lender to waive the deficiency and issue a 1099. You may have to be patient and we may need a thing or two to go our way in the suit, but a written waiver is very attainable,” HLA says.
In states that allow redemption, if the homeowner seeks to redeem the property, waiving the deficiency may affect the time lines.
“In a foreclosure action, a redemption period refers to the period after foreclosure judgment is entered when a property owner (or other lien holder) may recover or redeem the property by paying the judgment amount. The length of the redemption period is premised on whether the lender waives deficiency, or the amount still owed if the property is sold at a foreclosure sale for less than the outstanding debt. As such, the redemption period is one year for one-to-four family residences that are owner-occupied, churches, and farms if deficiency is not waived; and six months for these same types of properties if deficiency is waived. The redemption period for nonresidential properties is six months with deficiency reserved, and three if waived,” according to the State Bar of Wisconsin.