Simply walking away and letting the bank foreclose may seem like the easiest thing to do. And since some banks are slow at processing foreclosures, it could mean living in your house for several months before you’re required to move out. But there is a dark side to that plan. It’s called a deficiency judgment.
A deficiency is the difference between what you owe at the time of foreclosure, and the dollars the bank gets after selling the house and deducting all the fees and costs. That includes attorney fees, asset management fees, maintenance and utility costs, repair costs, and selling costs.
Banks decide to sue for a deficiency judgment at their own discretion. And while the subject may not come up during the foreclosure, it doesn’t mean you’re off the hook. They may wait to sue until it appears that you’re back on your feet and have the ability to pay.
Banks can wait years before filing suit for the deficiency. And then, once they have a judgment, they can pursue you for collection for 20 years. That’s way too long to have a huge debt hanging over your head!
The only means to avoid a deficiency judgment are through bankruptcy or effective negotiation during a short sale.
Unfortunately, avoiding a deficiency judgment isn’t an automatic result of a short sale. Unless your listing agent is a master negotiator or works with an attorney who is a master negotiator, you’ll still find yourself liable. And unless your agent knows how to read the bank’s paperwork to be sure your liability has been released, you could be in for a nasty surprise years after you think that episode in your life is over and done with.
Thus, eliminating the possibility of a deficiency judgment is one of the most important tasks I perform for my clients.
If you’re thinking of a short sale, give me a call at 703 8504330. I’ll be happy to explain the entire process and answer your questions.