The other side of short sales

Home values are plummeting and for some selling the property for less than owed to the lender may be the only option to avoid foreclosure. Many banks agree to write off large portions of the original mortgage enabling the new owner to take possession of it.

In some cases, closing doesn’t end the seller’s liability. Some reports indicate that the distressed seller is receiving a “bill” for the unpaid amount on his loan that he may have mistakenly believed was forgiven. While the mortgage (or the security interest in the property) was released, perhaps the unpaid balance on the note (the loan) was not. The short sale seller might not have gotten a copy of his note marked “paid in full” or some other document indicating that the balance on the loan has been forgiven by the lender. So maybe agreeing to the low ball offer presented by the first available buyer wasn’t such a good deal after all? Maybe another buyer would had been willing to purchase the property at a higher price thus reducing any deficiency he might owe to his lender? These transactions can become very fuzzy very quickly especially in situations where there is an “investor” or “intermediary” in the middle.

It is very important to be clear as to the fact, that deficiency judgments are a real possibility when a lender may seek the distressed seller to cover for the unpaid amount on his loan.