Short Sale re Foreclosure May NOT Be the End of Your Problems – Mortgage Lenders Still Hungry
February 3, 2010 by Admin
Filed under Stop Foreclosure Tips
This article just published is something ANYONE experiencing Foreclosure Must be aware of! The most important tip if you are trying to stop foreclosure through a short sale …
So, if you are pursuing a short sale, be sure your attorney asks the bank to release you from any further obligation.
The rest of the Foreclosure Tip article:
As terrible as its to get rid of your place to foreclosure, at least it is a relief to put your biggest financial headache behind you, correct?
Wrong.
Former homeowners may still be on the hook if there’s a difference between what they owed on their mortgage and what the bank could promote it for at auction. And these “deficiency judgments” are ticking time bombs that can explode years after borrowers get rid of their residences.
It may possibly even happen to individuals who got their bank to approve them selling their home for less than it’s worth.
Vanessa Corey, for example, brief sold her Fredericksburg, Va., household in April 2008. She and her husband built the house hold in 2004, but setbacks, both personal (divorce) and specialist (housing bust), made it impossible for the actual estate agent to keep her residence. So she negotiated the short sale and thought that was the end of it.
“My understanding was that the deficiency was negotiated away,” she mentioned. “Then, last November, I got a letter from a lawyer telling me I owed my lender $65,000. I had to declare bankruptcy. There was no way I could pay it.”
A lot of property owners are now in the same boat. And not just those who took out bigger loans than they could afford or who did so known as “liar loans” wherever they didn’t need to verify their income.
Because of falling household prices, borrowers who always paid their mortgage but who have run into unforeseen circumstances — like unemployment or a job transfer — can no longer market their homes for what they owe. As a result, they are being forced to short sell or foreclose and are acquiring caught up in deficiency judgments.
“After the banks foreclose, it’s very typical now to have large deficiencies with houses not really worth the balances owed,” mentioned Don Lampe, a North Carolina real estate attorney.
Lenders mostly declined comment. Even though Corey’s lender, BB&T did indicate it was pursuing more deficiency judgments.
“They follow the rise and fall of foreclosures,” stated the spokeswoman, who would not discuss Corey’s account.
Can they come following you?
Whether banks can and will pursue deficiency judgments depends on countless factors, including what state the borrower lives in and whether there’s a second mortgage or other liens. But if borrowers ignore the possibility of deficiencies, it could haunt them.
“Once they have a judgment, they can pursue you anywhere,” stated Richard Zaretsky, a board-certified actual estate attorney in West Palm Beach, Fla. “They can ask for financial records, have your wages garnished and, if you fail to respond, a judge can put you in jail.”
In the case of foreclosure, lenders can pursue deficiencies in more than 30 states, including Florida, New York and Texas, according towards the U.S. Foreclosure Network, an organization of mortgage law firms.
Some states, such as California, are “non-recourse” and don’t allow deficiency judgments. But, even there, if the if the original loan was refinanced, some or all of it could be subject to claims.
Deficiency judgments on short sales and deeds-in-lieu can happen in many more places. In these cases, extinguishing the debt is usually a matter of negotiating with the bank.
But even when lenders are willing, several borrowers could not be aware that they have to ask for release. So, if you are pursuing a short sale, be sure your attorney asks the bank to release you from any further obligation.
“People shouldn’t have a false sense of security that a deficiency judgment might not be later sought,” Zaretsky said.
He expects several will be filed over the next few years, based on the fact that banks have sold many of these accounts to collection agencies and other third parties, at discount.
“The parties who bought those notes wouldn’t have paid money for them unless they had the intention of acting,” Zaretsky stated.
Ticking time bomb
What can be scary is that the judgments don’t need to be obtained immediately. Lenders or collection agencies could wait until debtors have recovered financially before they swoop in. In Florida, the bank can wait up to five years to file. Once the court grants a judgment, the lender has 20 years there to collect, with interest.
It doesn’t need to be a big amount of debt for a lender or collection agency to come following borrowers. Richard Varno and his wife short sold their Nashville house back in 2004 following he lost his job.
It wasn’t until 2008, when the second lien holder asked him for $25,000, that he realized he still was liable.
“I told them, ‘Hey, you guys released the title,’” he mentioned. “As far as I know, I’m off the hook.”
He wasn’t. Releasing title does not necessarily end the debt. It is complicated because of variations in state law, but, generally, a mortgage has two parts: a pledge of collateral, represented by the residence, and a promise to pay off the loan.
Lenders could release property liens in order to facilitate brief sales without releasing borrowers from their obligations to pay under the promissory notes. The secured debt can convert to an unsecured one right after the sale.
Zaretsky had one client who was so relieved to have arranged a short sale that he signed every paper his real estate agent shoved at him, even a confession that clearly stated he still owed the debt.
“He had no idea what he was doing,” stated Zaretsky. “All the lender had to do was go to court to convert the confession into a deficiency judgment.”
Lenders are also very inconsistent. One of Zaretsky’s short-sale clients was ready, willing and able to pay, but the bank did not even ask; another lender constantly reserves the appropriate to pursue the deficiency.
Strategic defaults
Sometimes lenders go after borrowers walking away from their homes if they have other assets, according to Florida actual estate attorney Larry Tolchinsky.
“Banks are pulling credit reports to see if it’s a strategic default,” he stated. “If you’re behind on all your other payments, you’re okay. But if you’re not, they’ll come following you.”
If borrowers have any doubts about their risks, they should seek legal advice. Or, at least, call non-profit organizations such as NeighborWorks for advice. According to Doug Robinson, a NeighborWorks spokesman, its counselors always try to negotiate away deficiencies when they facilitate short sales or deeds-in-lieu.
“We don’t favor any short-sale contracts that leave any deficiency that can be pursued,” he stated.
Robinson himself knows what can happen. He paid off a deficiency immediately after his own New Jersey house went through foreclosure 11 years ago.
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