Foreclosure Alternatives

Short Sale and Deed in Lieu of Foreclosure A short sale is an agreement by the note holder or mortgage servicer to release the lien on the property and allow it to be sold to a third party free and clear of the lien. A deed in lieu of foreclosure is when the Note Holder agrees to accept a deed back from borrower instead of foreclosing on the property. Most short sale agreements or deed in lieu agreements offered by Mortgage Servicer’s are either silent on the issue of the deficiency or expressly retain the right for either the servicer, note holder, or mortgage insurer to sue you for deficiency judgment (explained below).

Generally, we do not advise clients to accept a short sale or deed in lieu unless the Note Holder and Servicer provides a written release of liability for the balance of the loan at the closing for the short sale or the deed in lieu of foreclosure.

Deficiency Judgments A “deficiency” is the different between the value of the property at the time of the foreclosure sale or short sale, and the principle amount of the loan.  In the current housing market, it is not uncommon for houses to be underwater hundreds of thousands of dollars. The most important thing to consider when you are in foreclosure or trying to complete a short sale or deed in lieu of foreclosure, is the possibility of a deficiency judgment being sought against you. Many people are told or believe incorrectly that a Note Holder or Plaintiff gives up its right to pursue a deficiency judgment if it does not ask for one immediately after the sale, Unfortunately, this is not true. Generally, the court cannot determine a deficiency judgment until the property is sold by the Note Holder. The Note Holder has the burden of proving the value of the property. The value of the property used to the determine the amount of the deficiency is the value of the property at the time of the foreclosure sale conducted by the Clerk of Courts. In order to obtain a deficiency judgment in the foreclosure lawsuit, the Note Holder’s attorney has to file a motion for a deficiency judgment and hold a hearing in which it has to prove the value of the property

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