Alert, Alert, Alert: Deficiency Judgements Can Be Collected YEARS After You Short Sale or Foreclose
One of the common mis-conceptions that owners facing foreclosure and deciding on “if” they want to “bother” with a short sale concerns their owner personal liability after the fact. Most people wrongly believe that if the “just let the house go” to foreclosure, they are done. However, it is not the case. The deficiency judgment can allow the lender to pursue recovery of funds years later. Imagine working hard to repair your credit, getting a great new job and starting to finally get ahead.... And then the lender comes collecting...
In Florida, lenders can wait up to five years to file for a court judgment to make the borrower pay and they have up to 20 years to collect the cash once the judgment has been granted.
A short sale, done correctly, can protect you from the future liability of a deficiency judgment. However, many lenders are allowing the short sale to go through but including a deficiency judgment in the “Approval Letter.” You and your Realtor® must read every paragraph thoroughly to ensure no judgment has been included. If a deficiency judgment or the right to file one, has been included in the verbiage, your Realtor® can work with the negotiator to have it removed. While every lender and situation is unique, in many cases, they are willing to work with the agent to either limit the recoverable amount or remove the deficiency judgment.
With foreclosure, even though the lender has taken back the home and resold it, they are allowed to come back after the borrower for their loss. By doing the short sale instead of foreclosure, the owner has a better chance of removing or limiting the deficiency. But you must read the fine print!