When a homeowner is way behind on a home mortgage, sometimes their best option is to sell the house rather than face foreclosure proceedings. However, as a result of the 2007 real estate crisis, many homeowners have a mortgage that is too high for the market value of the property. As a result, selling the home would not completely cover the amount due on the mortgage.
A sale that doesn’t cover the entire value of the mortgage is known as a short sale. In order for a short sale to happen, the bank or mortgage lender must agree to transfer ownership to a new buyer even though the existing mortgage will not be fully paid. For example, if a person owns a home with a $500,000 mortgage, but a possible buyer will only pay $300,000 for the house, then the bank must agree to accept the $200,000 deficiency in order for the sale to be allowed.
It can be difficult to convince the mortgage lender to accept this type of offer. After all, banks are not in the business of losing money. Typically, banks will only approve short sales when the homeowner has fallen so far behind that the bank will have to institute foreclosure proceedings. If it is clear that the bank or mortgage lender will never be able to recover the full value of the mortgage from the homeowner, the bank will often agree to take at least some money from a short sale rather than risk a very low sale price at a foreclosure auction.
Negotiating a short sale is complicated process that requires the help of many experienced professionals, including an experienced debtor defense lawyer like those at Fitzgerald Campbell.
In Order to Arrange a Short Sale, a Homeowner Must:
- Contact the mortgage lender and request a short sale package,
- Complete the short sale package,
- Obtain approval from the bank or mortgage lender to attempt a short sale,
- Hire an attorney,
- Get a price opinion letter on the fair market value of the house,
- List the house at a reasonable price acceptable by the bank,
- Locate a buyer for your home,
- Submit the short sale offer to any mortgage or lien holders on your property, and
- Obtain approval of the offer from the bank or mortgage company.
Once the short sale is approved, the homeowner may still not be free of his or her obligations regarding the mortgage. In some circumstances, the bank or mortgage lender will hold the former homeowner responsible for paying off the balance between the home’s sale price and the value of the mortgage. This is known as a deficiency judgment.
Luckily, however, California law prohibits lenders from seeking a deficiency judgment if your home was sold by a trustee pursuant to a power of sale clause contained in the mortgage, and only under very limited circumstances if you went through a judicial foreclosure.
If you are having trouble making mortgage payments and are considering a short sale, have already been sued for foreclosure or have any other debt-related issues, you need the help of an experienced debtor rights attorney—like those at Fitzgerald Campbell—to review your case and discuss your options with you. Our attorneys have decades of experience representing clients in all types of debtor defense cases and we are here to help you!