Can the bank still come after me after a short sale?
After a short sale has closed, your lender has the right to pursue you for the amount of their loss. Your lender can sue you for the deficient amount of the loan through obtaining a deficiency judgment. Banks will have anywhere from 5 to 10 years to pursue defaulted borrowers, depending on the laws of the state and the statute of limitations.
Banks subscribe to credit monitoring services where they can track prior borrower’s current credit standing. They might decide to pursue a borrower once they are back on their feet. All they have to do is detect when their credit and bill payment is improving and file the suit then.
In practice, most lenders do no pursue getting a deficiency judgment because it is costly and the likelihood of collecting on it is not very good. However, some lenders are differentiating between sellers who have a true hardship situation and sellers who own a lot of assets and have significant disposable income.
For those sellers who have assets and income who request for short sales, lenders are more likely to agree to a short sale for now, leaving the possibility open to sue the seller for the shortfall in the future. Lending institutions refer to sellers who do not have a legitimate hardship as “strategic defaulters.” Fannie Mae and other institutions have vowed to pursue strategic defaulters for years into the future in an effort to recoup losses from their loans.
For those sellers who have legitimate hardship situations, it is unlikely the bank will pursue them in the future, but it will depend on the banks’ policies.
How can a homeowner avoid a potential deficiency judgment? The best way to avoid a deficiency judgment is to make the short sale negotiation contingent upon the lender agreeing to waiver of a deficiency judgment.
This is a key reason for hiring a foreclosure professional. You want someone who can negotiate your short sale while keeping your best interests at the forefront of the negotiation. Caroline Allison has been able to get waivers of deficiency judgments for her clients. It all starts with how you set up your short sale package with the bank. Be sure and fill out the short sale contact form, and Caroline will call you to discuss your situation and options.