Many people think a short sale primarily consists of simply selling your home with a realtor as part of a lender sanctioned transaction. Others may view a Short Sale as an opportunity to get out of a bad investment or difficult financial situation. Regardless of your position or objective, it is important to understand the relative complexities before you begin.
A short sale is the process of selling your home that is underwater, netting out all major applicable selling expenses, and having your lender(s) agree to a net residual amount that is lower than the overall mortgage debt on the property.
Before considering a short sale, it is very important to understand that a mortgage has two critical components. The first is the deed of trust (DOT). The second is the mortgage note. The DOT follows the property and provides the lenders a defined path, mandated by state law, to recover the property in the event of default. This is the process of foreclosure. The mortgage note can be thought of as a personal liability stub that follows each borrower that has signed the instrument. In deficiency states, like Virginia and Maryland, the lender has the legal write to pursue both. This is where the risk enters the equation.
If you do not understand that the lender can recover the property by virtue of the deed of trust and also pursue the individual borrowers at the same time, or at a much later date in time, you can create unwanted contingent liability.
As a general rule, it is unwise to simply walk away from a mortgage that is underwater in a deficiency state. It is also unwise to simply hire a realtor to sell the property and not adequately address the personal liability associated with the mortgage note. A trustworthy realtor will inform you that you should hire separate legal counsel to address the personal liability.
A successful short sale equates to a permanent solution upon the sale and recordation of the underwater property. Partial solutions with improper advice and representation can result in costly problems years after you think the problem has been solved.
The best rule of thumb for a successful Short Sale is to be aware of the lender’s powers that are vested in the deed of trust and the mortgage note, and to resolve the issues comprehensively before closing and recordation so you do not create any future unwanted contingent liability.
George H. Omilan
President-CEO - NMLS# 873983
Jefferson Mortgage Group LLC
Helping seniors with Reverse Mortgages in Virginia, Maryland and Pennsylvania.
Questions/Comments encouraged.