Short Sale, Foreclosure and Strategic Default


Friday, September 21, 2007

Short sale - will you still be on the hook?

Short sales are very common in San Diego California and becoming increasingly common in Sarasota and Bradenton Florida. However, I have been contacted by multiple homeower's concerned that the bank is going to seek a deficiency against them (after a short sale). How can that be when so many real estate professionals have been trained to believe the short sale means settlement in full. Many people homeowners are under the same impression that that a short sale will automatically release them from deficiency liability so they just go ahead with the process.

I can understand the confusion. Lots of short sale advisors on the internet say the owner sells the property in exchange for a settlement in full. What these advisor can not say is that they must negotiate the deals and review the legal documents. Why don't they say it? If you have been reading my blog, you know.

Some banks state expressly in in their documents that the short sale is a release of deedonly and then state in the instructions to the closing agent that the homeowner is responsible for note. It is my understanding they make the borrower sign this document at the closing table.

At least in some instances Countrywide tells the closing agent it will not seek a deficiency under certain circumstances. However, if Countrywide were to go into a reorganization is that document binding as to the borrower.

My advice to homeowners: do not agree to a short sale unless your are satisfied that you will not be responsible for a deficiency and/or tax liability.

My other advice to homeowners - do not go to the short sale closing table unless you are with an attorney licensed in your state.

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