Cautionary Note For Short Selling Homeowners

by on December 27, 2009 in Blog, short sales

Moody’s Economy.com estimates that 3.8 million homes will be lost in 2009 and 2010 because borrowers cannot make their mortgage payments.  The same story is told all over the real estate community, with many real estate agents and short sale investors urging underwater homeowners to walk away from their homes.  Things are rarely as easy as they sound:

In A Short Sale May Not Mean You’re Home Free the Wall Street Journal highlights that lenders are increasingly seeking deficiency judgments against distressed borrowers who walk away from their homes in short sales.

Deficiency judgments are court remedies awarded to lenders to help their recuperate losses from short sales.  If a homeowner owes more than his property is worth and is able to negotiate a short sale with his lender he may find himself stuck owing part of the negative equity balance .

The good news for California homeowners is that all purchase-money loans for 1-4 unit residential properties are except from deficiency judgment.  This means that for most homeowners their first mortgages are safe from lenders pursuing further claims.

The catch for many homeowners is that hard money second mortgages are not except, and lenders are increasingly pursuing court judgments to recoup losses.  Borrowers usually need to file bankruptcy to expunge these debts, or pursue another type of debt settlement.

The takeaway is that things are rarely as easy as they seem, despite emphatic salespeople who might lead you to believe otherwise.  Nonetheless, you do have options and all economic hardships can be overcome.  Do your research, consult an attorney or a real estate professional.

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2 Responses to “Cautionary Note For Short Selling Homeowners”

  1. Sharon April 18, 2011 at 2:27 pm #

    Does anyone know how Chase Bank handles shortsales when the second mortgage is with them as well?? I have a client who is needing a short sale who’s two mortgages are with Chase, and I’d hate to see her get all the way to the end and not have it go through. I’m looking for anyone who might have some experience working with Chase. Thanks,.

    Reply
  2. Alexander Alpert May 25, 2010 at 2:59 pm #

    There is no doubt that every distressed borrower should be aware of the chance that lenders would pursue further claims even after a short sale. Yet, short sales still are one of the best ways to relieve a borrower of serious debt and or foreclosure. Contacting a short sale expert is still a great move, in my opinion. Feel free to mention the possibility of owing part of the negative equity balance after the short sale. Ishortsale.com or theshortsalecompany.com, are well known for this specific service. Starting up a conversation with an expert can only lead to better decisions.

    Reply

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