Deficiency Judgments
Losing your home in a short sale process has got to be about as much fun as having a dozen root canals done all at once. But once it’s over….it’s over….right? Not necessarily; a short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property's loan.[1] It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency. The following CNNMoney article explains this in a little more detail.
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Former homeowners may still be on the hook if there's a difference between what they owed on their mortgage and what the bank could sell it for at auction. And these "deficiency judgments" are ticking time bombs that can explode years after borrowers lose their homes.
It can even happen to people who got their bank to approve them selling their home for less than it is worth.
Vanessa Corey, for example, short sold her Fredericksburg, Va., home in April 2008. She and her husband built the house in 2004, but setbacks, both personal (divorce) and professional (housing bust), made it impossible for the real estate agent to keep her home. So she negotiated the short sale and thought that was the end of it.
"My understanding was that the deficiency was negotiated away," she said. "Then, last November, I got a letter from a lawyer telling me I owed my lender $65,000. I had to declare bankruptcy. There was no way I could pay it."
Click here to read the entire article: CNNMoney


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