The bank will charge me the difference of 232k after I do a short sale. Should I file bankrupt before or after the sale?

Every homeowner who is looking to short sale their property should be asking the following question: “On a short sale, will I have to pay the bank the difference between what I owe and the final sales price of my property?” The answer to this is both yes and no. Don’t worry, I’ll make it simple for you to understand.

#1: Let’s define terms:

Foreclosure Deficiency Judgment: A deficiency judgment is a lien against the borrower whose foreclosure does not produce sufficient funds to pay the mortgage in full. It is an actual judgment, that is, you are being sued. Thus, the borrower is liable to pay the difference between what they owe and what it sells for on a short sale or in an auction. The option to pursue the borrower is only available if the lender proceeds with a Judicial Foreclosure (basically, the lender sues you for the difference). Keep in mind that in a Non-Judicial Foreclosure, the junior lienholder can still pursue a deficiency judgement in many states. All of this can be determined based on original loan documents and/or the type of loan/lender.

Short Sale Deficiencies as Unsecured Notes: Short sale deficiencies are realized when the short sale does not produce sufficient funds to pay the mortgage in full. Short sale deficiencies are typically:

a. Waived in exchange for a pay off

b. Accounted for via promissory note for the deficient balance or percentage of the balance

c. Collected after the short sale as unsecured notes, that is, they will not be able to secure the lien against your other assets (since you’ve already sold the collateral property in a short sale) unless they actually sue you. Again, unless the lender/PMI/collections agency sues you in court and actually files a “deficiency judgment” against you, the note shall remain unsecured. For the most part, lenders will not sue their borrowers as it is more costly for them to do so then to keep in unsecured. Lenders in Utah often “reserve the right to pursue the deficiency” in a short sale, but what typically ends up happening is that the unsecured note most likely ends up being substituted with a 1099 (tax on sale) for the deficient balance (which they will charge off), which most homeowners are exempt from (Mortgage Forgiveness Debt Relief Act of 2007).

I Think I`ve Been Hit With an Invoice for the Deficiency/ I think I’ve Been Sued for a Deficiency Judgment: No need to fret. There are experienced debt negotiation specialists who can help significantly reduce and ultimately eliminate unsecured note.

Kelly Robbennolt
801-787-6398
kellyrobbennolt@gmail.com