Short Sale Deficiency Judgments and Promissory Notes
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Deficiency Judgments & Promissory NotesIf you have been told that there are not any consequences to a foreclosure or a short sale, you were being misinformed. Yes short sales and foreclosures can have a two significant consequences that can affect your future financial plans: Deficiency Judgments and Promissory Notes.Deficiency Judgment A Deficiency Judgment allows a creditor to sue you for the money they are owned up to 10 years after the foreclosure or short sale. Once the judgement has been filed, it will remain on your credit report for up to 7 years. It is important to ask your lender about a deficiency judgment throughout the short sale process and often times, you can negotiate with your lender to not seek a judgment. It is important that you get it in writing that they will not seek a judgment since it is common for the lenders to sell bad debt to collection agencies who may force you into paying them. Promissory Note Another remedy for a lender is to ask the borrower to hold a promissory note on the money that is owed to them following the sale of the home. Just like with a deficency judgement, it is critical that you negotiate with the bank to ensure that you will not have promissory note. Some lenders will insist on either option while others will agree to release the borrower from any further liability. Participants in the HAFA program are guaranteed to not have a deficency judgement or a promissory at the conclusion of their short sale. Are promissory notes and deficiency judgments the end of the world? Absolutely not. The fact remains that in both scenarios (short sale or foreclosure), the bank has the ability to collect on the balance that is owed to them. Often times in a short sale, the home will sell for more money, lessening the possibility of the judgment or the bank's willingness to accept a lesser settlement. In either scenario, consult with your attorney to find out what is the best solution for the outcome of your short sale. |
Topics
What is a Short SaleQualifications for a Short SaleThe Short Sale ProcessCost of a Short SaleTimeline of a Short SaleTax Implications of a Short SaleCredit Implications of a Short SaleHome Affordable Foreclosure Alternative (HAFA) ProgramDeficiency Judgments and Promissory NotesShort Sale Frequently Asked QuestionsDocuments for SellersActive-Duty Military: Avoid Foreclosure through the Soldiers and Sailors ActForeclosure Prevention ScamsBlog Posts on Short Sales
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