Today I will start by encouraging any potential home sellers to first seek the advice of an Attorney or CPA on their situation prior to listing their home for a short sale. Now here is the myth I want to expose:
Myth: If I short sale my home I will be leaving myself on the hook for deficiency.
Now here is what you need to know if this is your mindset. Short Sales are usually negotiated by an Attorney, Realtor or a company that specializes in negotiating short sales. It is through that negotiation that the person or company you hire should be doing what is necessary to ensure that your lender will be giving up their rights to pursue a deficiency or promissory note from you. After the negotiations are completed an Approval Letter will be issued from the lender. You need to make sure that the lender has waived their rights to pursue a deficiency in the Approval Letter. It is wise to have an Attorney review this letter for you. In Arizona the Short Sale Addendum we use states that the Seller and the Seller's Lender must come to an agreement in order for the sale to proceed and for an Agreement Notice to be issued that will allow the sale to continue.
Here are two scenerios that will most likely be the way your Short Sale will go:
- The lender issues an Approval Letter for the short sale and waives the right to pursue the deficiency. This happens more often than not IF you hired someone experienced in Short Sales.
- The lender issues the Approval Letter and does not waive the right to pursue a deficiency. In Arizona, if you have used the Short Sale Addendum with your contract inform the Buyer that you were unable to come to an agreement with your creditor, cancel the sale and allow the home to foreclose OR continue with the sale and keep your fingers crossed that you never hear from your lender again. In this case speak to an Attorney, because they will be the one to advise on which choice to make that will serve you best.
There are going to be some people that will be left on the hook for deficiency in a Short Sale, but I say why not try and Short Sale your home first instead of giving up and walking away? If you can't get your lender to give up the right to pursue a deficiency, then cancel the sale. There are in many great benefits for most Sellers who Short Sale their home in lieu of walking away and allowing it to foreclose. I will address those benefits in another blog.