I have worked with Citi Mortgage on short sales for over 4 years now, and I have always considered them to be one of the best banks to work with in regards to short sales. They have a fairly quick turn around time (ave. 40 days), they have a decent loss mitigation system in place and issue excellent approval letters for a short sale where they clearly release sellers of any deficiency and of having to pay any of the shortage back. But they are starting to change the way they do things and becoming more aggressive and DO plan on collecting on some short sale clients.
In the past when someone had loan that they were not making payments on and wanted to do a short sale, we would work with their loss mitigation department until the transaction was completed. In some rare cases when the account was past do, over 6 months, they would send the file off to their Recovery Department. This is a completely different department then their loss mitigation division and typically are much more aggressive when arranging a short sale. We knew they typically would require at least a 10% payoff if this was a second mortgage or HELOC with no equity, but still would issue an approval letter stating they would release the seller from any deficiency. Now it seems they are moving files over to their recovery department much more quickly (within 90 days of nonpayment) and when they agree to a short sale they WILL NOT release the client from any deficiency, only the lien.
What Citi Mortgage is doing now, is they are starting to sell these loans off to collection companies who are surfacing and buying bad debt. In the beginning of this real estate meltdown, not many debt collection companies were interested in buying this bad debt or the price to buy it was too high. But as there are signs of economic stability, debt collectors are starting to buy this collectable debt more and more frequently. So if you go behind on your mortgage that is a recourse loan, Citi Mortgage is more willing to move your loan over to this Recovery Department much more quickly. We have been told by Citi Mortgage representatives that at 90 days late, it is eligible to be move to the Recovery Department.
Once your loan is in the Recovery Department, they will still allow you to do a short sale, but only issue an approval letter stating they are releasing the lien, which leaves the account open to be sold off to the debt collectors who will pursue the sellers for any money they can.
So what can a short seller do? Well, many of the Citi Mortgage representatives are telling homeowners to make a payment which will keep it out of the recovery department for another 30 days. This may allow some time to get a short sale approved with their traditional approval letter. Could this be a tactic by CitiMortgage to get more money from a home owner? Possibly, but I can verify that I have personally seen this happen on several accounts. We obtained a great approval letter releasing the seller from any deficiency, and then maybe the buyers cancelled, and when we went back to the bank with another offer, the account went to the Recovery Department and we got a totally different approval letter, so we know this is in fact happening. If a home owner does not have any money to make a payment then the only option may be to start the short sale process as soon as possible once a payment is missed. If the loan is a recourse loan, or possibly a second mortgage with no equity position, and the first forecloses, there is still no relief from them selling this off to debt collectors or from the home owners having to pay this money back. Other options might be to hire an attorney to negotiate with the banks (and we do work with experienced real estate negotiating attorneys), or consider other options such as bankruptcy which would protect a homeowner from having to pay this money back. The growing trend seems to be that banks are still allowing sort sales, but more and more they are not releasing any deficiencies for the seller and plan on selling of this bad debt to collection companies.