On a recent call, a short sale seller asked me some questions about a short sale completed in the last 90 days. The seller had been required to sign a promissory note for over $60,000 as part of an agreement with the lender to complete a short sale. The seller is now unable to continue payments on the promissory note and had this question for me, “Can the bank sue me in court for a deficiency judgment if I quit paying on the note?” I told her the answer is “yes” and I recommended she find a good attorney.
Any short sale agreement between a seller and the seller’s lender should have definitive language relieving the seller from future liability of the loan. Without this language from the seller’s lender, the short sale seller continues to live with the liability of the loan and the threat of a deficiency judgment from the lender.
So you may have asked, “In the Phoenix Real Estate market, would I not be better off to let the bank have the home in foreclosure?” The purpose of a short sale is to relieve the homeowner of future liability from any and all loans secured to the property. If the short sale is performed correctly then the main benefit to the homeowner is to receive relief from the loans. A foreclosure does not provide such relief. In addition, any time there are multiple lenders on a property that gets foreclosed, the non-foreclosing lenders can still pursue the seller for a deficiency judgment for up to six years.
Every short sale situation is different, and sellers need to do some planning in order to make a well-planned exit from a bad situation. A well-planned short sale of your Phoenix Arizona Home should protect you from future liability. If the short sale is unable to provide such protection, then other alternatives exist and should be explored. Got questions about Phoenix Homes for Sale or about anything on the Phoenix MLS? Our Phoenix AZ Realtors have answers – give us a call today at 480-776-5214.
I’m a bit confused about the whole short sale thing – if you sell your house by short sale, the other loans you may have (subordinate loans?) can still be pursued? Or is that just in the case of a foreclosure? Thanks for your help, by the way very nice website.
Derek recently posted..Rental Contract
If the bank of the subordinate loans does not waive the right to pursue the seller, then the seller can still be pursued. Most banks will put sufficient language in an agreement notice waiving the right to pursue a deficiency. I would recommend having an attorney review any agreement notice to make sure the seller is protected.
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