The “short” in short sale refers to the difference between the total debt balance remaining on the mortgage and the sale price. This difference is called a “deficiency.” In a short sale, people are able to avoid foreclosure by selling their house for less than what they owe on their mortgage. Their lender must approve the short sale and then accept the sale proceeds which will be used to pay off a portion of the outstanding balance.
However, some lenders may not be satisfied with only that. When a bank suspects that a borrower has sufficient assets, it will seek a deficiency judgment against such borrower. Then, the lender will have the deficiency debt paid off by taking drastic measures such as garnishing the borrower’s wages or levying his bank account. Borrowers who want to avoid this type of situation should reach out to a skilled Miami foreclosure defense attorney and consider the following options.
1. Check State’s Anti-Deficiency Laws
Some states have statutes that prevent lenders from seeking deficiency judgments following a foreclosure. Even fewer states have anti-deficiency laws that address short sales particularly. Unfortunately, Florida is not one of those states. So Florida borrowers must look to other options.
2. Negotiate The Short Sale Agreement
For most of these options to work, borrowers must take action before accepting the short sale or a deficiency judgment won’t be avoided. When the approval of a short sale is being negotiated, borrowers should request their lender to waive its right to seek a deficiency judgment. If the bank agrees to waive the right to a deficiency, it must be included in the short sale agreement. If the lender accepts that the short sale proceeds will fully satisfy the mortgage debt, this too must be added to the agreement.
3. Make Settlement Offer
If the lender does not waive its right, borrowers can offer to settle the deficiency instead. Just like the option above, this should be done before the short sale happens. Borrowers pay a reduced amount lump sum or in installments to settle the balance on their mortgage. Lenders often accept settlement offers because going through with a lawsuit to get a deficiency judgment and actually collecting the full debt amount is a lengthy process.
4. Declare Bankruptcy
This option is for people whose lenders have successfully obtained a deficiency judgment against them. Filing Chapter 7 bankruptcy would discharge all the borrower owes, including his/her deficiency debts. Chapter 13 bankruptcy would mean the borrower would only have to pay a portion of what is owed to the mortgage lender. However, bankruptcy is not usually recommended if the deficiency debt is the only amount the borrower is obligated to repay.
The achievement of avoiding foreclosure with a short sale may be tarnished by a deficiency judgment. Those planning to short sell their homes should consult with a skilled Miami foreclosure defense attorney and take precautions to prevent their lenders from obtaining these judgments.
If you are experiencing financial hardship and cannot make your monthly mortgage payments, seek legal counsel at Graham Legal. If you want to explore the foreclosure alternatives available to you, call us today for your free consultation.