Question: Will I have to pay back the rest of the
amount owed on my mortgage after a short sale?
Answer:
As with most
legal questions, it depends.
First, it depends
on which state the property is located in. There are some states with
anti-deficiency statutes that preclude banks pursuing the remaining balance on
the loan (the legal term for the remaining balance is “deficiency”). However,
anti-deficiency statutes are not common, so this question will often require
another level of analysis.
Next, it will
depend on the investor of the loan. Loans that are backed by Fannie, Freddie,
FHA, and VA will allow for a full waiver of deficiency upon completion of the
short sale and full compliance of the terms of the short sale approval.
However, there are some narrow exceptions that may require the seller to make a
cash contribution at closing to offset a sum of the outstanding balance in
order to be granted a full waiver of the rest. These requested cash
contributions are the exception to the rule and can even can be countered by
the seller in some circumstances.
Finally, if a
private investor has backed the loan, the waiver of deficiency will depend on
that particular investors policy. Some privately held banks will negotiate the deficiency
on a case-by-case basis. Although policies
can vary, most of these private banks will primarily focus on the seller’s
financial position in determining whether to waive all or part of the
deficiency.
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