I am talking with more and more home owners in the Vail Valley that think the answer to getting out from under their mortgage is the Short Sale route.

When I ask why they think a short sale is the answer they tell me they heard from a freind or saw something on the TV that gave them the idea and by going this route they could avoid foreclosure or the dreaded bankruptcy.

Not.  Most of the homeowners I speak with have other assets and until they have been depleted their mortgage holder is not going to be too inclined to agree to a short sale.   For instance if your are not behind on other payments, like your credit cards, (your lender will check) you won’t get your lender to go along with a short sale.

But let’s assume a homeowner gets their lender to agree to a short sale.  The homeowners seldom get away with not having to pay the difference between what they owe the bank and what they sell the home for.   Their lender is going to want the homeowner to pay the short fall, aka deficiency judgement.

Most if not all homeowners think the once the home is sold for less than is owed they are off the hook for the deficiency.   So, the homeowner goes on about his/her business of getting back on his/her feet and then out of the blue several months later a call or a letter shows up stating something like, “hi we have filed a deficiency judgement against you and you owe $75,000.” 

Once you have a judgement filed against you (the kiss of death) the entity who got the judgement can pursue you anywhere, ask for financial records even garnish your wages.   Failure to cooperate could end in jail time.  How could this happen?

Most homeowners didn’t negotiate the deficiency with their lender or if they did they neglected to ask for a release from any further obligation.   So, just because the lender does not  go after the homeowner for the deficiency, they more than likely sold the deficiency off to a collecton agency or other 3d parties. 

Buyers of deficiencies don’t pay for them unless they think they can collect.  Judgements don’t need to be filed anytime soon.  The owners of the deficiencies tend to be a patient lot and wait in the bushes for the homeowner to get back on his feet before pursuing the money owed.  Judgements once filed usually hang around for 20 years and include interest.

Let’s not forget the 2d, 3d, 4th etc lein holders.  Just because a junior lein holder agrees to release the lein doesn’t neccessarily let the homeowner off the hook for the debt; it’s a little something called “a promise to pay” which could convert from a secured debt (the home) to unsecured debt.  Acknowledging the deficiency often shows up the stack of papers the homeowneer unknowingly signs at the closing. 

Moral, before you start down the short sale road, seek out a knowledgeable Realtor to discuss the posibilities and if a short sale is the best alternative, engage a knowledgable attorney to make sure you won’t be in for any surprises on down the road.

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