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Short sale sellers may still owe money
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While most homeowners are simply relieved to sell their home as a short sale rather than go through the foreclosure process, these sellers need to be aware that they might be breathing a sigh of relief too soon. Their lenders may be allowed to continue to pursue them to repay the missing funds which were not collected at the time of settlement.
According to this Wall Street Journal article by Ruth Simon, some sellers are surprised by the fact that can continue to be held responsible for their debt even after a short sale.
Simon writes, "In a growing number of cases, holders of mortgages or home-equity loans are requiring borrowers in short sales to sign a promissory note, which is a written promise to pay back a loan or debt."
The article describes the various decisions being made by different lenders dealing with short sales. While HSBC has declared a one-year moratorium on going after this debt, most other lenders say it depends on the circumstances of each case.
Simon writes, "How a borrower is treated can depend on mortgage company policy, the size of the unpaid debt, whether the borrower has a job or other assets, or whether the home was bought as an investment. "If there isn't a financial hardship ... that's where the investor or mortgage insurer will go after the homeowner for more," says David Knight, a senior vice president at Wells Fargo & Co.'s home-mortgage unit."
COMING IN SEPTEMBER: "HOMEBUYING: Tough Times, First Time, Any Time" by Michele Lerner
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