There are a dramatic number of deficiency judgment lawsuits being filed. Many experts predicted this and it is happening. There is just too much money sitting out there for the lenders to ignore. Many states have lengthy statute of limitations and lenders are taking advantage of it. Additionally, many home owners who were in distress are now financially stable and this makes them an easier target.
Home owners quickly breathe a sigh of relief when the short sale is completed. However, for many owners, this is the start of their problems. In the past, it was possible to get a “waiver” of deficiency as part of the short sale negotiation process. However, it is rare to receive a waiver today. You can ask for a waiver, but in all likelihood, it will not be granted.
So, what can you do??
The first thing to do is determine what the lender must do in order to enforce its rights relative to the deficiency judgment. In some judicial foreclosure cases, the lender has also received the right to seek a deficiency judgment when it received its final judgment. In other situations, the lender must take the additional step and file a lawsuit in order to seek a deficiency judgment. Many home owners transfer assets out of their name when they believe that they are going to be sued on a deficiency judgment. By then, it is too late as the lender has already performed an asset check PRIOR to filing the deficiency judgment complaint.
It is also interesting to note that the junior lien holders are more likely to pursue a deficiency judgment!! The reason for this is that they frequently received a very small percentage of the loan balance during the short sale. There is no seniority when it comes to a deficiency judgment. The junior lien holders have as much chance of receiving judgment as the superior lien holders.
There are measures that can be taken by prudent short sellers….
Paddy Deighan J.D. Ph.D
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