A mortgage shortfall occurs when your house is sold for less than the balance you owe to the lender, and the lender requires payment for the difference. This can happen in a retail transaction or a foreclosure situation. Knowing how to successfully deal with a shortfall demand for payment from a lender is the best way to know what steps to take in correcting it.
What a Shortfall Is
Shortfall estimates are determined by an appraisal value of a property. Appraisals, however, are more of an art than a science. Because appraisals are based on opinions and value estimates given by a single person, there are several things that can go awry when it comes to estimating how much of a shortfall is actually owed. You have a right to get a copy of the appraisal report and check that against a new appraisal. Many times this can reduce a shortfall amount or eliminate it altogether.
In a mortgage where you were required to pay for indemnity insurance during the loan term, the lender cannot come after you for a shortfall amount. This amount will be paid by the insurance company. If you aren't sure whether you were paying indemnity insurance on a loan, obtain a copy of your loan documents from the county clerk's office to verify.
Fighting a Shortfall
Not all items presented to you on a shortfall settlement statement are valid charges. Real estate fees, for example, are not a necessity in selling your home. In many cases, paying a buyer's agent out of your proceeds can be disputed with the lender. They can then pay the commissions directly and write off several thousand dollars in expense for you.
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