by Philip Fougerousse, Esq.
xxxxxBorrowers undergoing a mortgage foreclosure law suit may want to consider the option of making a short sale of their property. However, some who negotiate short sales with their lenders without the protection of an attorney end up desolate.
xxxxxIf mortgage lenders do not waive their right to pursue a deficiency judgment against the borrower, they can take in the cash from the short sale and then pursue a judgment against the borrower for tens of thousands of dollars.
xxxxxWhat is a deficiency judgment? Let's say that the borrower owes the mortgage lender $200,000 on the loan balance: but the property is now worth only $120,000 due to the dramatic decline in the real estate market. Suppose the borrower finds a buyer for the property who would buy it at $120,000. Subtracting the closing costs of 10,000, would leave a net amount for the bank of $110,000. In a short sale, the mortgage lender has the option of accepting the $110,000 instead of completing the foreclosure process and taking title to the property. If the short sale agreement negotiated between the borrower and the mortgage lender does not include a waiver of any deficient funds still owed, the lender can later obtain a judgment against the borrower for $90,000, which is the difference between the original 200,000 owed and the $110,000 in cash that they receive from the sale. Further, the lender may recover attorney fees, court costs, penalty fees and interest.
xxxxxLenders recognize the value of accepting a short sale as opposed to taking ownership of a property. The lender gets cash in hand rather than the burden of a vacant property that must be maintained until it sells. Therefore, expecting the lender to waive the deficiency is not unreasonable.
xxxxxAn experienced real estate lawyer can provide valuable legal guidance and protection for the borrower involved in a short sale. With some lenders, hard negotiating is required to obtain a fair result. An attorney should be involved from the beginning of the process to review the contract for a short sale before the borrower signs it. The attorney can insure the inclusion of a provision that completely releases the borrower from any further liability to the lender beyond the process of the short sale, with the latter being a condition of the completion of the sale. Failing to provide such protection could commit the borrower to going through with the sale while continuing to be at the mercy of the lender.
For help with mortgage foreclosures and other real estate issues, contact Attorney Philip Fougerousse.