Short Sales and Remaining Debt on Your Mortgage
Short Sales and Remaining Debt on Your Mortgage
Most people are surprised to learn that a short sale does not automatically cancel their obligation to pay off the remaining debt on your mortgage. There are two parts to your mortgage. The first part consists of your promise to repay the lender. The second secures the loan, creating a lien on your property — in other words, if you break your promise to repay, the lender has the right to have the property sold to pay off the loan.
When your lender approves, and agrees to accept a short sale, the lender is agreeing to remove or release the lien on the property. There is pretty much no way that you could sell a property without this lien release. When the lender agrees to the short sale, and release the lien, the agreement doesn’t always cancel the borrowers obligation to repay the loan in full.
Some lenders ask sellers to sign new unsecured promissory notes as part of approving the short sale. Other lenders, without asking for new promissory notes, reserve their right to collect the deficiency (that remaining balance of the debt) in their short sale approval letters. If you don’t hire the right people to assist you in the short sale, it might come back and bite you later. After the short sale closes, the lender could start collections proceedings against the borrowers. And in some cases, lenders sell the debts to collection agencies, which then go after the sellers for repayment after the short sale closes.
In some states, or in the instance of a HAFA short sale, first mortgages are non-recourse loans, meaning the lender can not collect the mortgage deficiency after a short sale. Make sure you know the rules and options!
It is always a good idea to contact an attorney to see if there are any state laws prohibiting your lender from collecting the deficiency and making sure you are not getting into something that you may regret later.
For professional short sale negotiations, contact The Portland Vancouver Home Team, info@PortlandVancouverHomes.com
We offer confidential consultations.
www.PortlandVancouverHomes.com
Tags: avoid foreclosure, Deficiency judgment, foreclosure, Internal Revenue Service, Lien, Loan, Mortgage loan, Short (finance), short sale
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March 10, 2011 at 7:48 pm
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