Deficiency judgements are popular again, especially distressing now that the tax break for distressed owners has expired (as of this post). Short sellers continue to face the possibility of lenders chasing them for the “deficiency”, that difference between the amount owed on the mortgage and the amount approved in the short sale. If that bullet is dodged, short sellers may have to deal with the Feds coming for taxes on that deficiency unless the tax break is reinstated. Considering a strategic default? Well the Feds have renewed their prosecution efforts there as well and are again pursuing strategic defaulters.
While it seems obvious that any distressed owner considering a short sale should seek legal counsel, many don’t. Many instead turn to real estate agents for answers – something that is mindboggling dumb. Why? Because real estate agents are not qualified in this arena. It is vital that all parties—agents and sellers—understand the legal consequences of a short sale and whether the lender will sue for the deficiency balance after the closing. Laws vary from state to state but common sense by sellers should be nationwide – and that common sense should scream consult an attorney.
Three Ways to Avoid Deficiency Judgments in Short Sales
- Anti-Deficiency Statutes. In some states, there are anti-deficiency statutes that protect most short sale sellers from any liability for the deficiency balance after the closing of a short sale. Georgia owners are not so lucky. In Georgia a deficiency judgment may be obtained when a property in foreclosure is sold at a public sale for less than the loan amount that the underlying mortgage secures. The lender must seek a deficiency judgment within thirty (30) days after the foreclosure sale. The foreclosure sale must be confirmed.
- The HAFA Program. The Home Affordable Foreclosure Alternatives Program (HAFA) is the U.S. Treasury program for distressed borrowers that want to participate in a short sale or deed-in-lieu of foreclosure. One of the best benefits (aside from the $3000 in relocation assistance) is that the lenders right to pursue deficiency is waived for all short sales approved through this program.
- Language in the Short Sale Approval Letter. No matter where you live, in order to get a short sale closed, you need to receive an approval letter. The text of the letter spells out in no uncertain terms what the bank plans to do after the closing. So, read carefully. In those letters, there may be a sentence that states something to the effect of “We reserve the right to pursue deficiency.” This is dangerous language, and anyone negotiating short sales should be advised to return to the lender and negotiate a revision or deletion of this sentence.
The most sensible course of action for Atlanta area home owners in a potential short sale situation is to seek legal counsel prior to making any decisions. The firm to speak with is Windward Law (678) 684-1500); HMT Atlanta has successfully closed short sales with Windward Law for years. For questions about short sales in Atlanta, the combination of Windward & HMT cannot be beat. Click here for additional information.
- See more at: http://hankmillerteam.com/2014/01/17/how-to-avoid-deficency-judgments-when-short-selling-a-home/#sthash.Xhxw6hpr.dpuf
