Posted by: Catherine | August 21, 2010

Don’t always listen to your bank – be sure you are doing a short sale for the right reason

I received a call today from a homeowner facing foreclosure.  She was told by the bank that after the bank forecloses they will pursue her for the deficiency balance.  Now, mind you , this is a primary residence, owner occupied with a purchase money NON RECOURSE original loan on the property (and no secondary liens).

Remember, that your bank is a) not necessarily on your side, and b) may not know the laws in all states.

I am not an attorney, but I do know that California is a anti-deficiency and single action state.  If the bank takes your home in a trustee sale/foreclosure , that is ALL they can do.  They can not pursue you for the difference between the amount owed and what the home “goes for” at the foreclosure auction. Every state is different however, so the bank reps may live in , or only know about, those states which allow deficiency pursuit following a foreclosure. There may also be exceptions I’m told i.e. fraud, etc.  Or, if the bank files a judicial foreclosure action in court – which I’ve not seen any do in California – yet .

Sometimes, a foreclosure may be best for this reason.  Don’t believe everything they tell you. In fact, if one was a conspiracy theorist, one might think they want you to do a short sale SO THAT they can put deficiency language in your approval letter – THEN you may be held liable …  so be very careful – be sure you are doing a short sale for the right reasons and ALWAYS consult with an attorney with any questions regarding deficiency, possible future judgements or other liability regarding your defaulting loan(s).

Today, I referred this person to an attorney to double check their protections, and this is the right thing to do.   I hesitate to think that some agents may have just seen this phone call as a listing opportunity and it may well not have been the best for the client.   We have to always think big picture, and always remember there may be more than one way to resolve a situation like this.  Do the right thing, always.

Now, if there is another reason you want to do a short sale, that’s fine, but be sure you go into it with eyes wide open and knowing all of your options.

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