MANY GET SUED AFTER A FORECLOSURE AND SHORT SALES

By
Mortgage and Lending with Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 NMLS # 6869

 

“Many Get Sued After a Foreclosure and Short Sales”

 

Many, that have experienced a foreclosure or a short sale are getting sued. They foolishly believe that once this process is done, the creditor that didn’t get paid all they were supposed to get, can’t go after the rest of the debt.

 

Not true, unless you get it in writing or the debt is discharged in a bankruptcy. Many aren’t properly represented and what is even worse, even if they are represented, they don’t always get good advice.

 

Know your obligations after a repossessionIn most cases, if these folks say they want the creditor to sign a document, that says, no one will pursue legal action to collect the remaining debt. Otherwise the creditor can take legal action to collect the debt.

 

They need to get everything in writing, no matter what they are told verbally.

  

Real Estate Q&A: Second Mortgage Comes Back to Haunt Borrower

 

BY: Gary M. Singer

 

QUESTION: I lost my home to foreclosure in 2010 and have moved on with my life and am trying to buy a new home. I just got served a lawsuit on the home equity line of credit that I had on the home that I lost. What is this?

 

—Lisa

 

ANSWER: This is a nightmare that more people are starting to face. When you lost your home two years ago, your line of credit, which is really a second mortgage, was not paid off because there was not enough value in your property to cover it in the foreclosure sale. That loan has sat out there, and now your lender has decided to sue you to recover the money that you borrowed.

 

A mortgage loan is made up of two components: the promissory note and the mortgage. The note, or credit agreement in your case, is the bank lending you money. The mortgage is the document in which you pledged your home as collateral to the lender to secure repayment of the money. Now the collateral, or your home, is gone, so the mortgage is useless — there is nothing for the bank to take back — but the loan still exists and your lender has the right to sue you to get a judgment against you.

 

Think of it as your friend lending you $10 to buy a hamburger and fries. Now it’s next Tuesday, and your friend wants her $10 back even though all that remains of your lunch is the lingering memory of it.

 

I encourage you to try to negotiate with your lender to take less than what is owed. Lenders often will take pennies on the dollar to settle this sort of debt.

 

Q: I am confused as to what defines the deficiency amount in a short sale. If $116,000 is the balance left on a mortgage and a short sale of $120,000 is accepted by the bank, is there still a deficiency? If so, how is it figured?

 

—Henrietta

 

A: In a short sale, the deficiency refers to the amount remaining owed to your lender after the closing. In your example of a $120,000 sale price, the bank may have received only $106,000 after paying for real estate agents and closing costs, in which case the remaining deficiency would be $10,000.

 

In a foreclosure, the “deficiency” is the amount that is awarded to the lender on the final judgment, which includes not only the remaining principal due to your lender, but also attorneys’ fees, court costs, interest and the like, minus the actual market value.

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Joe Petrowsky, NMLS #6869

Right Trac Financial Group, Inc. NMLS #2709

110 Main St.

Manchester, Ct. 06042

Office: 860 647-7701 x116

Fax: 860 647-8940

Cell: 860 836-9294

Email: joe@righttracfg.com

www.righttracfg.com

www.joepetrowsky.com

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Joe Petrowsky does not guarantee nor is in any way responsible for the accuracy of the information provided herein, and provides said information without warranties of any kind, either expressed or implied.

Equal Housing Statement: We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. We encourage and support an affirmative advertising and marketing program in which there are no barriers to obtaining housing becuase of race, color, religion, sex, handicap, familial status, or national origin.

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Show All Comments
Rainmaker
346,653
Dan Brudnok
Keller Williams RE- Exton - PA License Number #RS225179L - Downingtown, PA
REALTOR,e-PRO,ABR,GREEN,SRES,CSP

Great points Joe...too many "assume" and you know what that means.

Aug 17, 2012 06:53 AM #1
Rainmaker
152,465
Tanya Van Blake-Coleman
Van Blake-Coleman Realty, St. Thomas/www.talk-to-Tanya.com - St Thomas, VI
Improving the Quality of Your Life

Sound like a bit of a mine field to navagate. We don't have a lot of these that are not being handled directly through the banks and attorneys. But it is good information to have.

Aug 17, 2012 06:55 AM #2
Rainmaker
176,651
Dee Toohey
Innovative Realty Solutions Group - Longwood, FL
Broker, ABR, AHWD, CIPS, FMS, ePro

I have recently has a few customers who closed short sales with letters reviewed by attorneys that claim deficiency is waived where months later, the 2nd lien holder starts calling to collect the debt.  In all cases, I resent the short sale approval letter to the customer for the bank.  (They never seem to hold on to that paperwork, right?)  In all cases so far, the letter was submitted to the collector and they dropped the case. 

I suspect this will happen more and more. 

At first, customers will call you and be upset because of the collection calls.  After you help them through it, you've created another valued added service so the brightside is that hopefully, when they buy again, they'll come to you!

 

Aug 17, 2012 06:58 AM #3
Rainmaker
449,674
Gay E. Rosen
Houlihan Lawrence - Larchmont, NY
Honest, Hardworking and always Professional!

Joe-  great post... it all goes back to good representation. Beyond all of that... there are cases where people transfer  other property documents in family member's names to illustrate they have no other income/assets elsewhere... these people deserved to get chased if that is the case...  A oast client did that, and I would not take the short sale listing.

Aug 17, 2012 07:20 AM #4
Rainmaker
839,542
Joshua Zargari
MJ Decorators Workshop LI staging and home decorating - Lynbrook, NY
MJ Decorators Workshop

Hi Joe.

Nothing to add to the above comments.

Have a nice weekend.

Aug 17, 2012 10:28 AM #5
Rainmaker
1,991,589
Roy Kelley
Retired Real Estate Broker, Maryland Blogger - Gaithersburg, MD
Roy and Dolores Kelley Photographs

Very timely topic and good information for home sellers.  I expect there will also be many legal actions against the agents that failed to obtain the releases at settlement.


Have a wonderful weekend and enjoy the days of August with your camera in hand.


Aug 18, 2012 03:29 AM #6
Rainmaker
176,651
Dee Toohey
Innovative Realty Solutions Group - Longwood, FL
Broker, ABR, AHWD, CIPS, FMS, ePro

I attended a Florida Real Estate Commission workshop on short sales and they have concerns about agents creating LLCs, negotiating short sales and charging high fees for this work, whether agents can negotate sales, and what lawsuits will ensue, eventually.  The attorneys present all had a different view of the situation.  It was a rather interesting discussion and of over 100,000 licensed agents in Florida, about 25 showed up to listen.  What can I say?

Aug 21, 2012 05:22 PM #7
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Joe Petrowsky

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