When people sell their home for less than they owe on their mortgage it is called a “short sale”. And these can give short-sale-sellers the impression that the agreement to repay the amount borrowed has been satisfied, and that it is time to move-on like in a traditional sale.
You pay, you stay… if you don’t, you won’t
Some of my buyer clients have bought these “short sale homes” at below-market prices which was very good for them. Buyers kind of walk away with a really good deal… if they are patient and can wait months for a written response from the bank, which has to agree to the short sale.
I have heard “real estate experts” on WTOP radio or the “TODAY Show” giving pretty flip advice about trying for a short sale if you are upside-down (industry jargon meaning: the mortgage is greater than market value). Okay, time for my observation that should be discussed with an attorney because it is a good possibility that the bank will come after the short-seller long after the sale closes.
You’re still on the hook!
You see, when the bank sends over the short sale approval letter to be signed by the buyers and the sellers, it spells out that the bank agrees to take “x amount” for the mortgage. And if there is a home equity or second mortgage, accept “x amount” for that too. My buyer clients have been eager to sign-on because the letter always includes an expiration date for this “short-sale deal”.
But, short-sale-sellers need to read it carefully because it will also include a sentence that says that the seller is still responsible for the debt, like, for example, the bank will accept $1,000 instead of the $35,000 owed to get the house sold. I have seen home sellers sign whatever was put in front of them thinking that their problems have finally come to an end. Or have they?
The home seller’s risk is a deficiency judgment
I always thought this was odd, and my suspicions were confirmed recently when I read an article by real estate attorney Harvey S. Jacobs in The Washington Post, and it’s an article worth reading. He pointed out that banks can use “deficiency judgments” to aggressively get their money back… and these baby’s are good for 12 years! Take a look at this article
I have an excellent real estate lawyer in Northern Virginia to recommend to people considering a short sale because you need some legal advice before you decide to sell your home as a “short sale”.
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