Am I Liable For A Deficiency Judgment After A Short-sale

Am I Liable For A Deficiency Judgment After A Short-sale

As horrible it is to lose your home to foreclosure, ex-homeowners may still be on the bait for the deficiency amount. This is simply the difference of what is owed on the mortgage and what the bank could sell at an auction. "Deficiency judgments" can haunt borrowers, years after they have lost their home.

It can be an unexpected surprise for anyone who have sold their house through a short sale where the lender agreed to sell the house for less than the mortgage owed.

Vanessa Corey who achieved a short-sale on her Fredericksburg, VA property in 2008 is a true story. Years after she had completed construction to her home in 2004, tragedy struck leading to a legal divorce with her husband and the emergence of the economic recession, pushed her to sell the property through a short-sale.

As a real estate agent, she thought that the deficiency amount was negotiated away. In other words, she thought that the difference was forgiven by the bank. Last November, she received a letter from her lawyer indicating that she owed her lender $65,000. She was forced into bankruptcy as she had no means of settling the payment.

Numerous banks choose not to make statement about the subject of 'deficiency judgments'. Corey's bank, BT&T confessed that they were going after more borrowers with deficiencies.

Are You Protected From A Deficiency Judgment? Whether banks can pursue such a feat depends on several factors including what state the borrower lives in. Other factors include whether there is a second mortgage or other liens involved. It can certainly haunt borrowers if they chose to ignore the possibilities of deficiencies.

Mr. Zaretsky, a property lawyer in Palm Beach, Fla said that once your bank has judgment on you, they can pursue you regardless of where you reside. They can demand for your financial records and have your salary taken away or have you jailed if you ignored any contact.

In reference to home foreclosures, lenders can pursue deficiency judgments in more than 30 states. According to the U.S. Foreclosure Network, an organization of mortgage firms, this includes states such as Florida, New York and Texas.

Luckily they do not allow 'deficiency judgments' in California and Arizona. Other states that prohibit these judgments include Wisconsin, South Carolina, Washington, Pennsylvania, Oregon, N. Dakota, Alaska, Iowa and Montana.

As financial institutions are likely to agree in forgiving the deficiency amount, many ex-homeowners do not know that they are needed to opt for a release. This can be done by having your legal representative demand a release from your financial lender.

Zaretsky says that homeowners should not take things for granted assuming that a deficiency judgment will not return and hit them. He believes that many of these judgments will be pursued over several years to come. It is important to note that these accounts were sold at a loss to various collection firms and third-party investors. These firms would not have purchased these loans if they weren't eager in recovering the amount they paid for them.

Judgments don't have to be obtained immediately by lenders or collection agencies. They may choose to wait until the debtors have financially recovered before they file with a court. In the state of Florida, the lender has up to 5 years to file. Upon receiving judgment, the lender has up to 20 years to collect the debt with interest.

Regardless of how small the debt is, banks and collection firms can pursue borrowers. Mr. Varno together with his wife sold their Nashville home in 2004 through a short-sale arrangement once he lost his job. 48 months later in 2008, he was pursued by the 2nd lien holder for $25 K. His defended himself by stating that they had released the title and that did not make him liable anymore.

Unfortunately, that was not the case. The release of the title does not mean that the debt will be extinguished. Due to the diverse variations in state laws, in general, a mortgage responsibility consists of 2 parts. The first part is the collateral in which the pledge is the asset or house. The second part is the promise and agreement to pay back the loan.

Lenders may release property liens so as to enable a short-sale transaction but not necessarily releasing borrowers' obligations to pay back the loan based on the promissory notes. Upon the sale of the home, the secured debt can transform into an unsecured debt.

Zaretsky claimed that one of his clients' who was so excited in obtaining a short-sale, carelessly signed all the documents that his real estate agent provided him including a confession that clearly made him still legally liable for the debt.

He was unaware that the financial institution could take that document and transform it into a deficiency judgment through the legal system.

Financial institutions are not very trustworthy or may not be acting on your best interest. Zaretsky explained of a separate borrower who was rich and eligible to pay off the debt. However, the financial institution did not reciprocate as they knew they can later come after him for a deficiency judgment.

Mr. Tolchinsky, a Florida state realtor claimed that financial institutions may pursue borrowers who walk-away if they suspect that they may have other listed assets.

Banks will research to see if it was a pure walking-away attempt where the borrower truly could not afford to make his or her mortgage payments. If they find out that the borrower has been making timely payments and is in financially sound status, he or she maybe targeted for the deficiency.

If you are unsure, it is recommendable to obtain the services of an attorney to make sure that the debt in the short-sale or deed-in-lieu agreement is negotiated away.