How Do I Avoid Liquidation of Assets in a Short Sale?

A short sale is an agreement between a borrower and a lender allowing a borrower to sell a home short of his mortgage balance to the bank. In certain cases, a lender can file a deficiency judgment, allowing seizure of borrower assets.

Contract Wording

The wording in a short sale contract with a lender will have a specific section devoted to deficiency judgments and the right of the lender to collect any difference in the amounts. Borrowers should have a short sale contract reviewed by a real estate attorney in order to provide adequate protection for their assets.

Bankruptcy Filing

When a short sale borrower files either a Chapter 7 or a Chapter 13 bankruptcy, this will protect any assets she has against seizure in a deficiency judgment from a short sale. A bankruptcy filing negates any legal recourse a lender might have in regards to pursuing collection of any amount after the sale.

Considerations

The primary purpose of a short sale is to avoid a deficiency judgment for both parties altogether. However, if the property does not sell and goes into foreclosure, the short sale contract and wording pertaining to a deficiency judgment and collection becomes void. This allows the lender to take all legal ramifications to collect on a debt. In this case, the only protection a borrower would have against asset seizure is to file bankruptcy.

References

• Lawyers.com: Selling Your Home for Less Than What You Owe
• Foreclosure Law Firms: Anti Deficiency Laws
• Internal Revenue Service: The Mortgage Forgiveness Debt Relief Act and Debt Cancellation
• AOL Real Estate: Short Sales