Will You Still Owe After A Short Sale or Foreclosure?
Tue, May 5, 2009 By: Amy Shocket
Many borrowers are under the assumption that their responsibility for a mortgage ends with a short sale or foreclosure. This is not always the case.
In a short sale the mortgage holders are increasingly requiring borrowers to sign a promissory note, a written promise to pay back all or a portion of the debt, as a condition of the short sale approval. Increasingly mortgage holders are asking sellers to sign a promissory note or retaining their right to pursue a deficiency.
In many states lenders have the right to come after borrowers for unpaid mortgage debt from a foreclosure or short sale, seeking a deficiency judgment. Many times it is the second mortgage holder who will pursue the deficiency as the first may have been satisfied through the short sale.
Whether or not a mortgage holder will pursue the borrower can depend on (1) their agreement with the investor or servicer, (2) what is allowed by State law, or (3) if the return outweighs the potential return. In addition, if there isn’t a true financial hardship that is when the mortgage holder might be more inclined to try to collect the unpaid balance.
In Nevada, NRS 40.455 gives creditor 6 months from the date of foreclosure or trustee’s sale to request a hearing and determine if a deficiency judgment is owed the creditor.
As a REALTOR it is outside of my area of expertise to advise a client regarding a promissory note or whether or not they could get hit with a deficiency judgment in the future. I strongly advise anyone who is faced with a short sale or foreclosure to consult an attorney before making any decisions.
Please keep in mind that in order to complete a short sale you will need a TEAM of professionals including an experience REALTOR, a CPA and an attorney. Each of these team members will play a critical role in assisting you.
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Tags: deficiency judgement, foreclosure, promisory note, short sale
June 6th, 2011 at 6:49 am
Amy, you make a great point about contacting an attorney, these short sales are so subjective on what the banks are going to do to try and get some of their money back. As Realtors we cannot give legal advice and sellers need to contact an attorney regarding the recourse that the banks have.
August 28th, 2011 at 12:05 pm
I would specifically recommend a real estate attorney, as not all attorneys are well versed in this field.
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