What happens to mortgage debt in a short sale?
August 28, 2017

WILL I OWE MONEY AFTER A SHORT SALE?

One of the most common concerns my sellers have is whether they will owe money after their short sales are closed. While Connecticut allows lenders to pursue borrowers for deficiencies when properties end up in foreclosure, short sales are a different story.
 

Man pulling cash out of pocketShort sales give sellers the opportunity to avoid foreclosure by selling for less than what is owed, and a chance to negotiate how the unpaid balance on the mortgage gets settled.

While no promises can be made util the short sale approval letter arrives, well over 90% of the time a full settlement is reached, with the lender agreeing to waive their right to pursue any deficiency. In fact:

  • Fannie Mae and Freddie Mac (who own most loans), have adopted streamlined guidelines with policies of debt forgiveness included for those who successfully short sell
  • FHA,  VA and USDA policy is also to also fully waive any balance with a successful short sale
  • Many other private investors participate currently waive their right to pursue any deficiency in a successful short sale.

There are currently very few lenders who in fact will not fully forgive debt in a short sale, but there are some. These are most commonly smaller lenders with portfolio notes who are not subject to the rules of any existing short sale program, and must be negotiated individually.

Minna Reid

Minna Reid is Broker/Owner of Reid Real Estate Group. Reid Real Estate Group is a full service Connecticut residential real estate brokerage, specializing in helping homeowners with legal and financial challenges including short sales, probate sales and tax lien complications.

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