Beware of Short Sales in Florida
WHAT IS A SHORT SALE AND HOW DOES A SHORT SALE GET DONE ?A sale of property is considered to be a "short sale" if the selling price is less than the total amount necessary to satisfy all mortgages and the debt secured by that property
Property is listed for sale at a price that is consistent with what other similar properties are selling for. However, in order to actually conclude such a sale, all mortgage lenders and other lienholders must AGREE to accept the price and to release their liens on the property so that it can be sold to the new buyer with a clear title. This is where the problems occur and the danger lies.
WHY IS A SHORT SALE DANGEROUS ?Since you cannot conclude a short sale without the lenders' approval, first of all you need to obtain that approval. This can take a very long time, and at times the lender will say no. However, you cannot even go to the lender for approval unless you have a contract of sale, so first you have to do all the work involved in listing the property and negotiating a sales contract, THEN submitting it for approval. This process becomes even more difficult if you have a second mortgage or a home equity loan, because that lender also has to agree, at at times the lenders will NOT agree.
Worse yet, more and more lenders will agree to allow the sale to go through, BUT, IF STATE LAW PERMITS, WILL STILL RESERVE THE RIGHT TO SUE YOU FOR A DEFICIENCY JUDGMENT! This of course, is the worst of both worlds, because you have given up the house, no longer have any home or negotiating leverage with your lender, and now they have an easy road to sue for deficiency judgment.
HOW WILL I KNOW IF I FACE A DEFICIENCY JUDGMENT RISK ?Oftentimes, you don't know until the very last minute. No one says a word, the agreement is obtained, the approval is requested, buyers and sellers wait for an answer for weeks or months, and then, FINALLY, maybe an approval arrives. However, buried in the fine print of the approval there may well be language that provides that the short sale DOES NOT satisfy the debt. The realtors are urging the parties to close, since that is how they are getting paid, and the Seller may not realize the dangerous language is in the approval, or may not know how t get out at that late stage.
WHAT IS A DEFICIENCY JUDGMENT ?In a nutshell, it is the difference between what the house was worth when it was foreclosed on, or when sold at short sale, deducted from the TOTAL AMOUNT YOU OWE. Whatever that difference is, can, in Florida, become a deficiency judgment in favor of your mortgage company. Once that happens, the judgment has a life of at least ten years, and can be renewed for a second ten years. It can be filed in any other US state, and wherever it is filed, it can be used to levy on any non-exempt assets you own, and in many states can be used to garnish wages.
In Florida, lenders have FIVE YEARS after the foreclosure or the short sale to ask for the deficiency judgment, so at times people think the bad mortgage is behind them, not realizing that the deficiency judgment issue is still waiting in the wings.
Not all states have provisions in their laws for deficiency judgments, and some that do limit the time to pursue them sharply, but Florida has a very liberal deficiency judgment policy.
SO, WHAT CAN I DO ?Speak to an experienced foreclosure defense attorney BEFORE you make any decisions and BEFORE you take any action. You may be surprised to learn that the best option for you is not what you would have originally expected it to be. The most important thing to understand is that, once your house is sold and the mortgage company has gotten the money, unless it has obligated itself not to pursue a deficiency judgment (which is becoming much less frequent), it has the right to keep going, and there is every reason to believe that it WILL keep going. The amounts of these potential deficiency judgments in Florida, where so many properties are so greatly upside down, represents a very large amount to go to the mortgage companies' bottom lines - there is no reason to believe that they will pass up efforts to collect these debts.