Free Specialist Consultation!

Short Sale Guide

Short Sale News

Connect With Us

Homeowners May Still Owe After Short Sale

Former homeowners may find themselves still owing money to their lenders after losing their home to a short sale, unless they take the right precautions, recent realtor reports show.

There are laws that prevent lenders from going after the deficiency in a short sale, but they are unclear and tend to be affected by a number of variables, according to Arizona Association of Realtors counselor Michelle Lind.

Lind said that many Arizona homeowners thought the law automatically kept lenders from soliciting payment from borrowers if the property doesn't sell for as much as the balance owed. However, not all short sale cases work that way, she added.

The biggest trap, it appears, are second mortgage or home equity loans. Sellers may be led to believe that both the first and second mortgages would be terminated by the short sale, only to find out that one of the notes had been sold to a different lender.

The continuous drop in home values contributes to the problem, as many homeowners don’t have enough equity to pay off their balance on their first mortgage, putting second mortgages out of the question.

Some lenders will agree to take around $3,000 in exchange for letting the borrower off the debt, while others want to get more back and have borrowers write promissory notes obliging them to pay part of the amount later on. In the case of the latter, the borrower often falsely thinks that they are free of obligations.

Many agents refer their clients to real estate lawyers to help clarify the term of the short sale and make sure all the debts are discharged. Although it costs them more time and money, it helps avoid unwelcome calls down the road.