Your Obligations May Not End With A Short Sale

Your Obligations May Not End With A Short Sale


For most Americans, these are certainly challenging times.

Specifically, for the majority of people alive today, they have no remembrance of the last major recession, the sharp downturn of 1981-1982 being something they may have read about in their history books.  Having no experience with a deep recession, plenty of Americans are feeling uneasy if not downright worried about their personal financial situations.

Facing Foreclosure, Some Opt For A Short Sale

home loanHomeowners who have fallen behind on their mortgage payments are facing foreclosure, perhaps losing their homes within thirty days of receiving notice from the court that legal action has been taken against them. For some savvy homeowners, they’ve managed to escape foreclosure by arranging a short sale where a buyer comes forth to purchase the property for an amount that is less than what is still owed on the mortgage.

With a short sale, that deal must meet the approval of the lender who stands to lose thousands of dollars on the transaction. For example, if a home is sold for $195,000 and the homeowner still owes $230,000 on the home even though it may now be worth only $215,000, the mortgage company is out $35,000.  In normal times, a lender would likely object to a short sale but these days may accept one if the only alternative is a costly foreclosure.

Still Responsible For The Loan Deficiency

Yet, homeowners need to be careful when going with a short sale because they could still be held responsible for the deficiency. In the example I mentioned, that amount would be $35,000.

Even if the first mortgage is resolved through a short sale, a second mortgage may not be. According to The Wall Street Journal which covered this subject on April 30, 2009, D1 — A Short Sale May Not Mean You’re Home Free — separate negotiation with the secondary lender may still be required.

Check Your Contract, Familiarize Yourself With State Law

Just because a lender is out thousands of dollars in a short sale, they may have no legal right to pursue payment.  Homeowners need to check their mortgage agreement and also familiarize themselves with state law. One or both could forbid the collection of a deficiency.

But what if you are required to make up the difference? Do you have any recourse?  You’ll need to consult an attorney specializing in consumer finance to find out for certain. However, you may be able to negotiate a lower amount or, if you are unable to pay the deficiency, you could file for personal bankruptcy in a bid to discharge your debt.

Investors Lose Big Time With A Short Sale

Inasmuch as homeowners believe that they should be able to walk away from their financial obligations through a short sale, lenders often look at the hit that their organization takes when they accept such a deal. Ultimately, shareholders lose out as the bank or mortgage company must show the loss on their books, a hit that impacts the business’ bottom line and the value of company stocks and bonds.

Lastly, if you’re behind on mortgage payments, seek legal advice to make sure that your rights are preserved. Too many homeowners are falsely conclusion that a short sale ends their financial problems, when in fact they could just be beginning.

Adv. — Need recession coping tips? Visit to help you manage your finances. Consider paying off your mortgage early too.


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About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Matt's Musings", his personal blog. Matt covers campus, consumer, business and financial topics on various websites and blogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".