If you have gotten behind in your mortgage payments, you may not have many viable options available to you for avoiding foreclosure. If you can’t work out a deal with your lender (frequently the bank that lent you the money to buy the home) or loan servicer that will allow you to come current on your payments, you may want to consider a “short sale.”
What is a Short Sale?
A short sale is when you sell your home for less than the balance remaining on your mortgage. A short sale can help you avoid having your lender foreclose on your home, but it has its own particular rules and risks.
First, the short sale must be approved in advance by your lender. Why? Because the agreement is basically one where your lender (or the holder of your mortgage) is taking less than what is owed on the mortgage, in exchange for not having to go through the time and expense of a nonjudicial foreclosure. Essentially, it’s a “bird in the hand” approach where the lender agrees to take less now, rather than getting more later at a foreclosure sale.
Deficiency Judgments and the Risks of a Short Sale.
Another thing you need to know about when it comes to short sales, is deficiency judgments.
Let’s assume your lender agrees to a short sale with you. This means that the lender agrees to accept the proceeds of the sale of the house (which are less than what you owe) and to cancel the mortgage instead of foreclosing. This may be good for you and your credit rating, but what about the remaining amount of money that is still owed? Does agreeing to a short sale completely wipe out your obligation to pay the full amount you owe on your mortgage?
The difference between the sale price of the home (whether it is by short sale or nonjudicial foreclosure) and the total mortgage debt owed is called a “deficiency.”
In some states, like Georgia, the lender (or holder of the mortgage) can seek a personal judgment (called a “deficiency judgment”) against the debtor (i.e., you) to recover the deficiency.
The lender has to follow certain rules and procedures, of course, but once the lender gets a deficiency judgment, he can collect the remaining amount owing from the borrower through debt collections procedures and tools like garnishing the borrower’s wages or levying the borrower’s bank account.
What all this means is that, unless the lender/holder who agrees to a short sale with you waives its/his rights to a deficiency, agreeing to a short sale alone will not prevent the lender from seeking a deficiency judgment.
So, what can you do to protect yourself?
Get it in Writing.
Very often when a lender agrees to a short sale, they will confirm that agreement in a “Short Sale Approval Letter.” To protect yourself from a deficiency judgment, you will need to negotiate as part of the short sale agreement that the bank waives its right to pursue a deficiency against you. You will need to make sure that this waiver is in writing. In other words, make sure that the Short Sale Approval Letter specifically states that the lender/mortgage holder agrees to not sue the seller/borrower for the deficiency.
Foreclosures can be stressful and confusing. It is important that you know what your rights and options are. That is why it is always best to consult with experienced real estate counsel.
Georgia Real Estate Attorneys For More Than 30 Years.
If you are facing foreclosure, or have any other real estate problem, call us. With over 30 years’ experience in real estate transactions and litigation, we have the experience that you need. We are a real estate firm with offices in Cumming, Georgia and we serve Atlanta and the surrounding counties. To schedule your free phone consultation, call us at: 770-888-7707. Or you can contact us here.