BluefoxToday blog : Short sale can bite the borrower later on

Short sale can bite the borrower later on

They have become one way out of an untenable jam for many homeowners who can't make their mortgage payments in this tough real estate market. In a short sale a lender will allow the homeowner to sell the property for less than what the loan balance is. It often means the matter is over and done with, once the sale is closed. At least that's what the borrower is aiming at.

Mortgage lenders can go after the now former homeowner later for the unpaid portion if they choose to, as long as the loan documents and state laws support that. Frequently they don't bother with it even if they legally could because it might turn into an expensive chase after something that possibly isn't even there.

Lately, though, mortgage firms have become more aggressive on this issue, perhaps because there are signs that the housing market is on the verge of turning around. Nowadays a short sale agreement often includes a promissory note, a written pledge to pay back a debt. It usually is buried among the paperwork, so anyone contemplating such an action ought to carefully scrutinize what they are asked to sign. 

Every mortgage lender essentially has its own policy on this. Aspects they consider is what type of assets the borrower has and his employment status. Lack of financial hardship is going to be a red flag. What if the house was an investment property? That's a factor. Another thing weighing in is the unpaid loan balance. To go after a homeowner who only owes, say, $15,000 probably isn't worth it. But if the number goes to $80,000, for instance, things quickly become much more focused.

Prices have retreated dramatically in the once high-flying areas like Las Vegas, Phoenix and several California and Florida counties and have left thousands of homeowners with vast gaps between their mortgage balance and current home value. They are severely upside down. It's predictable that short sales in these loactions are being quite closely analyzed.

Bottom line, know what you are signing when considering a short sale.


Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 8 commentsEsko Kiuru • May 05 2009 03:57PM


Good advice, Esko!  It's always good to consult with a short sale attorney in your state before you consider a short sale, foreclosure, or bankruptcy.

Here's some tips on how to speed one up if you decide to go ahead:

Tips to Speed up a Short Sale

Thanks for tips!  :) PS

Posted by Patrick Schutte, REALTOR (Flex Realty) almost 11 years ago

That's why I run from listing these boogers!!

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) almost 11 years ago

Esko, I did not realize that they could do that.  Thanks for the info, I will pass it on.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) almost 11 years ago


The details must be known. Foreclosures and even car repossessions can also leave a borrower still deeply in debt.

Any negotiated short must include a negotiated release of liability.

Great point Esko.


Posted by Richard Byron Smith, NMLS #184479, Mortgage Loan Officer (Mortgage Loan Officer, Fairway Independent Mortgage Corporation NMLS #2289) almost 11 years ago


It's important to understand how the whole process works.

Posted by Esko Kiuru almost 11 years ago


I hear you.


Posted by Esko Kiuru almost 11 years ago


Nowadays, if the proper promissory note wasn't in the original documents, banks often sneak it in there when approving a short sale.

Posted by Esko Kiuru almost 11 years ago


Good point, the release of liability. Homeowners ought to keep that in mind.

Posted by Esko Kiuru almost 11 years ago