While a home is pending foreclosure, the bank may agree to cut its losses. It allows the seller to make a short sale and accepts less money than the seller owes on his loan.
Learn more about: How to Deal with a Short Sale Deficiency?
One of the questions that I get asked by homeowners is, what happens to the deficiency in a short sale? I’ll answer that right after this.
All right, so in a short sale, the whole reason that the homeowner is doing a short sale is because they’re underwater. And so they wanna make sure that they get relieved of any deficiency. Before we answer what happens to that deficiency, let me answer what a deficiency is. So if the homeowner’s mortgage is, for example, $500,000 and the market value is $300,000 there’s a shortage of approximately $200,000 on that home or on that mortgage.
So what happens to that? The whole point of doing the short sale is that you’re asking the bank to waive that deficiency of that $200,000. So once you get that short sale approval, you just want to make sure that approval has that clause or turns that the bank is gonna waive that deficiency.
There have been certain instances where the bank has come back and said, “Hey Homeowner, we want you to contribute to the short sale transaction and they want you to sign a promissory note.” That’s most likely in the instances where there is mortgage insurance on that property and the mortgage insurance wants you to sign a promissory note.
In the last eight years that I’ve been working on this short sale business, I’ve had that happen probably about one or two times out of hundreds of transactions. So you have to fight for that and you have to dispute that with the bank.
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