Some homeowners face an overwhelming financial burden because of the real estate market. Some unfortunate homeowners bought at the top of the market or swindled by financial schemes. Some people are caught drowning in debt because their mortgage is overwhelming while the value of their home has plummeted after the burst of the real estate bubble. Regardless of the situation, when a homeowner is “underwater”, meaning that their mortgage is drastically more than the value of the home, a short sale may be something to explore.
What is a short sale?
A short sale is when a lender agrees to take a loan payoff that is less than the value of the mortgage. A short sale will impact a person’s credit, but not to the extent of bankruptcy or foreclosure. The short sale may be a good option if the overwhelming debt is just real estate. The lender must approve the payoff. The seller cannot receive any of the proceeds. Closing costs are paid by the bank.
Short sales are not guaranteed
Firstly, because the lender must approve the short sale, if there is evidence that shows you can afford your mortgage, you may be rejected from their short sale program. There are many other factors that can impact the success of a short sale. If there are multiple loans, one of the lenders may reject the payoff they are offered. Other things that can impact a short sale include mechanic’s liens, outstanding homeowners or association dues, tax liens, and liquid assets that can cover the shortage of the loan.
Deficiency of the loan
Many short sale agreements include the stipulation holding the seller liable for the shortage. This is called a deficiency. Just because they agreed to a payoff that is less than the mortgage doesn’t mean you are completely off the hook. Financial situations change and if they believe that you can afford the difference sometime in the future, you could be held accountable for the remainder. Depending on the terms of your short sale, your lender could pursue full payment with some exceptions. It is imperative that you have an attorney on your side fighting for a waiver of deficiency.
Friedman Schuman is an experienced and dedicated legal resource for clients throughout Pennsylvania. We proudly serve clients facing a wide range of legal matters. If you require the services of an effective attorney, please contact Friedman Schuman today to schedule a consultation.