Category: Short Sale Attorneys

A short sale is a good option for homeowners facing difficulty in paying off their mortgage debts. The lender agrees to take the sale price at which the house is sold, even if it is less than the mortgage amount, allowing the homeowner to avoid foreclosure altogether. However, there are situations where the lender seeks a short sale deficiency judgment against the homeowner several months or years later, leaving them surprised as to why they still have to make mortgage payments after everything has been settled.

What is a Short Sale Deficiency Judgment?

The amount received after a short sale is usually less than the total mortgage debt. This difference between the selling price and the total debt is referred to as deficiency. For example, if you owe your lender $150,000 on the mortgage, but the short sale price of your home is $100,000, the difference of $50,000 is the deficiency.

The lender may pursue a personal judgment against you to recover the deficiency amount after the short sale. Typically, once a deficiency judgment has been made, the lender may collect the outstanding amount from you by levying your bank account, garnishing your wages, or through any other means permissible by law.

How you can avoid a Short Sale Deficiency Judgment

If your lender is seeking a deficiency judgment, there are several ways you can avoid paying back the deficiency, such as:

• Make an offer to Settle the Deficiency: Before the short sale, you can make a deal with your lender to settle for a lower amount of deficiency to avoid problems after the transaction has been completed. Since filing for a deficiency judgment and collection of debt is a costly and lengthy process, your lender may agree with your offer to save time, money, and energy. You may even negotiate to pay the deficiency in manageable installments over time.
• Waiving off the right to pursue a Deficiency Judgment: When you are working with your lender to get approval for the short sale, you can request them to rescind their right to pursue a deficiency judgment. If they agree to it, make sure to include this provision in the short sale agreement. It must be explicitly stated in the agreement that the transaction fully satisfies the debt amount and the lender revokes their right to seek the deficiency.
• Declare Bankruptcy: Another way to avoid a deficiency judgment is to file bankruptcy to reduce or eliminate your debt. You may file Chapter 13 bankruptcy to pay only a portion of the total amount. You may also consider filing Chapter 7 bankruptcy to completely discharge the deficiency.

If your home is on the verge of being foreclosed and you want to negotiate a short sale agreement with your lender, you should hire a foreclosure defense attorney to help you with the process. The attorney will also assist you with negotiating about a short sale deficiency judgment with your lender. Contact Covert & Covert, LLP at (630) 717-2783 or online to schedule a free consultation today. We have offices in Schaumburg, Illinois, Warrenville, and Naperville.

It is not uncommon for a homeowner to be facing foreclosure when they have taken out a mortgage against their property. In such cases, a short sale is the perfect solution for the homeowner to avoid foreclosure. Although it may seem like a one stop solution to everyone facing the problem, there are certain risks associated with a short sale for both the buyer and the seller.

What is a short sale?

For those who are not yet familiar with the concept of a short sale, let’s start by defining it. A short sale is the selling of a home by the owner for an amount that is exceeded by the total debt balance on the mortgage. This is a way in which a homeowner can avoid foreclosure.

Risks for sellers

Deficiency Judgment

This is one of the biggest risks that sellers take when making a short sale on their home. A deficiency is the difference in the total debt on the property and the selling price of the home.

To understand it better, let’s take the example of a homeowner that gets the approval to sell their property for $300,000 but the amount owed is $350,000. This creates a deficiency of $50,000. In most states, the lender reserves the right to seek personal judgment against the seller for the recovery of the deficiency.

To evade a deficiency judgment, the short sale agreement must specifically state that the current transaction fully satisfying the debt and the lender approves to waive their rights to the deficiency.

The Application and Approval Process

The process is extremely frustrating for the seller because the short sale must be approved by the lender and their loss mitigation department. Most short sales fail to materialize because the lender takes their sweet time to analyze the deal before they come to a decision. The decision can be both in approval or a rejection.

The deal can be rejected by the lender if the selling price is lower than the fair market value or is lower than the listing price.

Fortunately for borrowers, the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC) have made the processes much more streamlined so that the approval can be quick and easy.

Risk for Buyers

Prices are not what they seem

Buyers get attracted towards short sale offers when they look at the price, but the initial price was set most likely by the real estate agent, which is why it was low. When it comes to the actual price after the price has been approved by the lender, the lender has to minimize their loss, which is why they will make the price go up and the buyer will find themselves wasting a lot of time being interested in a property they cannot afford.

Not in good condition

Most short sale homes are sold in a hurry and the buyer receives them in the condition that they are, which means any long term repairs will all come under the buyer’s responsibility.

In case you are considering buying or selling through short sale, consider talking to a lawyer who specializes in these cases. Contact Covert & Covert, LLP at (630) 717-2783 or online, to schedule a free consultation today. We have offices in Schaumburg, Warrenville, and Naperville.