nevertheless Owing Money After a Short Sale
Many distressed home owners have opted to use the short sale as a way to get out of a mortgage they can no longer provide on a home that is valued less than what they owe. It has been a blessing to many and has helped people to avoid foreclosure proceedings. However, if the short sale is not done properly, former home owners can find themselves being called by debt collectors for the remaining balance of the loan.
Second mortgages or home equity lines of credit (HELOC) are the main culprit in this scenario. Most short sales only cover the first mortgage. The second lien holders may be able to collect $3-5000.00 from the sale, but often they do not receive a dime. Later, after the short sale has been completed, these lenders sell their bad debt to a collection agency and the calls begin to come in.
This can be avoided in most situations. When a home owner is considering a short sale they should closest contact a real estate attorney. The attorney, when negotiating the final sales amount can include a clause in the contract stating that the home owner is not responsible for any further collection action from first or second mortgage holders after the sale. It is imperative that both parties are included in this clause to avoid collection activity down the road.
Many home owners have believed in the past that once the sale was completed they were free and clear. This has not been the case. Collection activity begins almost a year after the sale and is relentless. Without that clause in the contract you are liable for the remaining debt, especially to the second mortgage holder. These collection agents can pursue you aggressively, ruin your credit and may already take you to court for the amount that is nevertheless owed. These collectors, of course, add their collection fees to the debt making the debt larger and harder to pay off.
Some states are nevertheless considered non-recourse states. What this method is that if a mortgage goes bad and a home is sold, the original borrower is not responsible for any difference in the loan amount. However, this non-recourse rule does not apply to second mortgages in any state.
Borrowers must also be aware that many lenders have now resorted to including a promissory observe in the contract. This observe obligates the borrower to pay for the remaining balance of their debt to the lender after the short sale has gone by. Many lenders state they will not approve a short sale without this guarantee. However, with proper representation by a real estate attorney this pitfall can be avoided.
Home owners that are already facing financial problems do not need this additional grief. IT is very important to have a clause in the short sale contract relieving you of the responsibility of the balance of the loan(s).
Short selling has become a widely practiced form of real estate selling in the last two years due to the market. Most lenders do not like the time of action and continually change their guidelines for the time of action. Real estate agents, already those that specialize in short sales, cannot keep up with all the different rules and regulations set forth by the many lenders. For this reason it is crucial to have an attorney involved in the time of action.
Selling your home in a short sale can help you avoid foreclosure, but it is a very dangerous course of action for the home owner if they are not prepared. If this is the course you must take with your home, you should arm yourself with a knowledgeable real estate agent and a competent attorney.