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what happens to the remaining mortgage balance after a negotiated short sale?

Asked by Voices Member, Fri May 1, 2009

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The lender can go after you within a 30 day time frame so when negotiating make sure one of the conditions make it noted as "paid as agreed" or "paid without recourse as part of your terms.

Atlanta International Realty, LLC
Helmut Oscar Saroza
Broker Realtor
atl-intl-realty@live.com
770-383-2318
0 votes Thank Flag Link Tue Feb 14, 2012
In a nutshell, the possibilities are:
1. The bank can seek a promissory note for the difference
2. The bank can file a deficiency judgement - note that in the state of Georgia they must file within 30 days
3. The loan can be noted as "paid as agreed" or "paid without recourse".

You obviously want the third option and an experienced short sale Realtor will be working to ensure that this happens. Banks vary on this policy and it seems to change daily. Keep in mind that even in a foreclosure, the bank can still file for a deficiency judgement against you for the amount that is short, but a foreclosure will have a much worse impact. It can affect your credit score, your ability to purchase a home, employment, security clearances, etc.

By doing a short sale you are being proactive and it's typically a win-win for everyone. That is one of the key areas we focus on when negotiating short sales is helping the bank to understand that our client wants to do the right thing and get the home sold, rather than have it foreclosed, which invariably will cost the bank more money.

One final point regarding the "short" amount. It will also be reported to you on a 1099 as required by the IRS. Under the Mortgage Forgiveness Debt Relief Act of 2007, the law eliminates the tax on this amount, as long as you meet the criteria. The biggest one being that it must be your principal residence, which means if it's a short sale involving a vacation home or investment home, then the exemption would not qualify.

Hope that helps.

Aaron Hofmann
Certified Distressed Property Expert.
0 votes Thank Flag Link Fri May 1, 2009
This all depends on a couple things: When negotiating for a financial institution to approve a Short Sale I always begin with bargaining for: forbearance of foreclosure during the listing period, the deficiencies to be waived, and the mortgage be marked satisfied. When it comes to the deficiency - It is not usual for a bank to agree to waive the deficiency, however, if it is a very large deficiency they may ask that you pay all or a portion of the deficiency over a period of time. Sometimes they even give very agreeable terms such as paying a portion and beginning repayment in 5 years and paying it off over the next 15 years. But the most important part regarding that happens with the deficiency is the people negotiating your Short Sale: 1) Your Lender and 2) Your Realtor. The things to remember when it comes to this are: EVERY LENDER IS DIFFERENT. A neighbor with a comparable home and the same amount on their note could be approved and their deficiency waived and yours not be. Every bank operates differently! And lastly - in Georgia you can be pursued for the deficiency for up to 6 years. Unless you have a truly qualified agent who is doing their homework and working dilligently to negotiate the mortgage satisfied and deficiencies waived you can bet that you'll be getting some collection notices. Remember - the deficiency will not be waived unless you at least attemp to negotiate that it will be! Please do not hesitate to contact me with any further questions. I'm a Certified Short Sale Specialist and Certified REO Foreclosure Specialist and would be delighted to assist you. Please visit my blog for more FAQ's about Short Sales.
0 votes Thank Flag Link Fri May 1, 2009
first or second mortgage? generally it is forgiven. second mortgage's may reserve the right to collect. it just depends upon how the short sale is negotiated with the lender and what all parties agree to. the point of the short sale is to satisfy the mortgage with less than what is owed on it. does that answer your question?
0 votes Thank Flag Link Fri May 1, 2009
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