Deficiency Judgments: Are Short Sales Worth the Risk?

If you’re facing foreclosure, you may have done a little research on a short sale as a means of avoiding foreclosure. A short sale is when you sell your home for less than you owe on your outstanding mortgage debt, and the lender releases the lien on the property.

This might sound like a great option, but there is a lot of risk that comes with short sales. There are a number of things that can delay the proceedings or even stop them altogether. And even after the sale is complete, you might not be off the hook for the remainder of what you owe. This week, we’ll focus on the later risk, the risk that you could still owe a lot of money even after the short sale is over. This is called a deficiency judgment.


The Risks of Short Sales: Deficiency Judgments

When you sell your home for less than you owe, the amount that is not made up in the sale is called a deficiency. For example, if you sold your home for $100,000 but you owed $150,000 on the mortgage, you would have a deficiency of $50,000.

The lender may want to recover this from you, in which case they would seek what’s called a deficiency judgment to force you to pay what the short sale didn’t cover. Deficiency judgments are prohibited after the completion of a foreclosure in most states, but they’re only prohibited after a short sale in a handful of states. Maryland, West Virginia, and Pennsylvania are not among them. This means that even if you complete a short sale, you could still be on the hook for a sizable amount of money.

The only way to avoid the threat of a deficiency judgment is to negotiate what’s known as a waiver of the deficiency during the sale. “The short sale agreement must expressly state that the lender waives its right to the deficiency and that the transaction is in full satisfaction of the debt. If the short sale agreement does not contain this waiver, the lender may later file a lawsuit against you to obtain a deficiency judgment after the short sale is completed,” according to NOLO.

Can you risk a deficiency judgment? Are you in a position to negotiate a waiver of the deficiency? How much would you owe? These are all questions you need to ask yourself if you’re thinking about a short sale. These risks are very real and need to be taken seriously.

A Short Sale Alternative in the Tri-State Area

One option is to consider an alternative to a short sale. Grays Home Solutions is a home buyer in the Tri-state area that has been helping homeowners avoid foreclosure without having to go through a risky short sale. We offer:

  • A fast sale. We’ll buy your house in 7 days or less.
  • No repairs. You won’t have to make any repairs on your home.
  • No fees.
  • Payment. Depending on your situation, we may be able to pay you in cash.

When it feels like you’ve been backed into a corner, contact Grays Home Solutions. We’re a free service, and our number one goal is to find a solution that works for you, and help you stop foreclosure.

Use our fast response contact form to get in touch with us online, or call us direct at 240-347-3141 for even faster service. Don’t delay!