Here’s the typical scenario: You owe more than what your home is worth. You have someone who will buy your house for what it’s currently valued at (called a short sale). Your mortgage lender agrees to the sale; the paperwork and sale are finalized. You give the keys to the new owner, move out and are relieved that you no longer are stuck paying for a home that just isn’t worth the money. You walk away and start over.
But wait, it’s not over. You may still owe the bank the balance of your mortgage minus the money that was brought in from the short sale. This is called a deficiency and the bank has the right to collect that money from you even though you no longer live in nor own the house unless you received a “written waiver of deficiency judgment” from your bank upon the sale of the home.
Florida law allows lenders up to five years to file for a deficiency judgment. Once the judgment is entered, your mortgage lender can collect the amount by garnishing your salary or bank accounts, placing a lien on any other real estate you may own or attacking any source of equity you may otherwise have other than your homestead.
A deficiency judgment does not have to be pursued by your bank right away. In fact, many Floridians are just now receiving notices for homes that were sold by short sale two or three years ago.
For many, a short sale may seem appealing as an answer to mortgage troubles. But, more often than not, bankruptcy is a better option. Whether you are interested in saving your home from foreclosure or have decided it is best to part with it, a Chapter 7 or Chapter 13 filing can help relieve the stress of an overwhelming mortgage payment on a home that’s no longer valued at what you’re paying.
When completed correctly, with the assistance of an experienced bankruptcy attorney, there will be no deficiency judgment to haunt you two or three years down the road. Your debts will end with the discharge of your bankruptcy, in approximately 90 days for a Chapter 7, or in three to five years for a Chapter 13.
Source: WINK News, “Foreclosed Homeowners may still owe cash to banks,” 6/06/2011