The unsecured promissory note is becoming a more commonly used tool to prevent future deficiency judgments. If you haven't experienced this already with a short sale, where you are the listing agent, be prepared because it is coming your way.
Upon bank review of the agreement they will counter the offer to the homeowner requesting them to sign a unsecured promissory note for the remaining short balance. As you can imagine, this type of counter from the bank, can throw a monkey wrench in the entire process and possibly kill the deal.
So how can you prevent the bank from requesting and unsecured promissory note? Well it's all going to revolve around percentages. If the short balance is greater than 15% to 20% of the total amount owed you can most definitely expect the bank to request a unsecured promissory note to be signed by the homeowner. It is important that this possibility be disclosed to your home owner up front when the obtaining the listing so that you don't have any uncomfortable surprises towards the end.
I'm sure your next question is why would the bank make such a demand. The first thing to understand is that the request of a promissory note is the bank's way of telling you and the homeowner they will most likely pursue a deficiency judgment if they agree to the deal. The promissory note is the bank's way of giving your client and out, of sorts. In other words, sign a promissory note today or expect a future deficiency judgment, if they decide to do the deal at all.
Keep in mind this is a business decision the bank is making, they have supposedly done the math, looked at the credit, looked at the assets, read over the hardship and determined the deal may be worth losing. This may sound crazy to you and me however from the bank's financial point of view some deals just aren't worth the paper they're written on and therefore they ask the homeowner to have some type of responsibility and the short sale of their home.
In closing, if you have an experienced a promissory note by now count yourself among the lucky few because I guarantee in this market of uncertainty the unsecured promissory note is going to start appearing more and more often in a short sale situations than it ever has before.