It’s hard to lose your home because of financial setbacks. Worse still, however, is losing your home and still ending up with a massive load of debt because the bank sold the property for less than what you owed.
A short sale is often touted as an easier, gentler way out of a mortgage than foreclosure, but it can backfire if the bank turns aggressive.
What’s a short sale?
A short sale occurs when a homeowner sells their property, with consent from the lender, for less than the amount owed on their mortgage. This typically is done to avoid foreclosure when the homeowner can no longer afford the payments.
Unfortunately, New Jersey permits lenders to then turn around and sue the original homeowner for the difference between whatever the lender got in the sale and the actual mortgage within three months of the sale.
For example, imagine you owe $250,000 on your home. You fall behind on your payments. To avoid foreclosure, you negotiate with the bank to allow you to sell the property – which has fallen into disrepair because of your financial state – for $200,000 to a buyer. The bank then has three months to pursue you for the remaining $50,000. This is called a deficiency judgment.
Is there any out?
In some cases, you can reduce or eliminate a deficiency judgment by proving that the home sold for fair market value, which may be very possible when the home needs a lot of repairs. That being said, it’s still better to seek tailored legal guidance about your situation before you agree to any sale – because there may be other options.
