The Wall Street Journal
A short sale may not mean you’re home free
Some homeowners who sell their homes through short sales are finding their mortgage companies still try to collect some or all of the difference between the bank-approved short-sale price and the outstanding mortgage balance. Some mortgage companies also are taking legal action to recover unpaid amounts after a foreclosure is completed.
MAKING SENSE OF THE STORY FOR CONSUMERS
- A lender tactic gaining popularity is for the holders of mortgages or home-equity loans to require borrowers in short sales to sign a promissory note — a written promise to pay back a loan or debt.
- HSBC Finance has implemented a one-year moratorium on the collection of deficiency balances for short sales and foreclosures that occur after April 1, due to the “current economic environment,” according to an official with the company.
- Not all borrowers who sell their homes through a short sale or lose their homes to foreclosure will receive a deficiency claim. Often, mortgage companies don’t try to collect unpaid amounts either because state laws prohibit or limit such actions or the cost outweighs the potential return. California has anti-deficiency rules that prohibit lenders from pursuing borrowers after foreclosure, but California does not have anti-deficiency rules for a short sale.
- The borrower’s situation often is the determining factor in whether the lender tries to collect the unpaid debt or not. The borrower’s employment status, assets, whether the home was purchased as an investment, and the amount of debt owed are taken into consideration.
- It is important that sellers are informed of the lenders requirements, read the fine print, and ask questions when selling their home via a short sale. According to one real estate attorney who represents financially troubled homeowners, every short sale she has worked with has had a promissory note or terms giving the lender the right to collect a deficiency. Often, the terms are buried in the sale contract, according to the attorney.
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