Will I owe the bank money after I short sale?

short sale questions

This is a very important question. Many people are afraid of doing a short sale because they are concerned the bank could come after them later for funds.  If you don’t do a short sale correctly, a bank CAN come after you afterwards.  If you do a short sale correctly, a bank CAN’T. I make sure the short sale process goes correctly.

Listen to this important question posed to a real estate lawyer.

Q. I have heard conflicting information regarding the banks’ ability to have a deficiency judgment against the seller of a property in a short sale and the banks’ recourse against that seller/borrower. Will you please clarify and address Oregon Law regarding recourse vs. non-recourse?

A. There is no recourse or non-recourse in the “deficiency judgment” sense in a short sale because there is no judicial foreclosure.  A short sale involves the voluntary modification of a legal debt obligation and therefore can contain any terms the parties want.  Recourse and non-recourse is about the ability to seek a deficiency judgment in a court of law under state foreclosure statutes.  In a voluntary modification (like a short sale) the “deficiency” is the unpaid balance of a note.  A note holder can sue on the unpaid balance of a note unless the maker of the note bargains for and gets “full satisfaction” of the note instead of just the note holder’s agreement to waive their lien and not foreclose.  To get full satisfaction you usually have to ask for it.  Otherwise, the lender can waive their lien, forego foreclosure and continue to hold the note.  With the note comes the right to the unpaid balance as personal debt no longer associated with real property.  The reason you hear conflicting information is that the difference between foreclosing on property and bargaining for modification of a debt witnessed by a note is not well understood.

June 12, 2011
AUTHOR

Stephen FitzMaurice

Stephen FitzMaurice, Realtor is a top 5% real estate agent in the U.S. and a top 1% agent in the Portland Metro. Principal Broker in Oregon, Managing Broker in Washington he has been licensed since 2003 for residential real estate sales in the Portland Metro area. Call him direct: 503-714-1111.

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