Q&A: Selling "Short"

Q: My house is not worth nearly as much as we owe on it and think they trying to do a ‘short sale’ is what we need to do. Will we still owe the rest of the money that we agreed to pay if the lender lets us do a short sale? Any information you can provide would be helpful.

A: First, your lender would have to approve such a sale (normally called a short sale). It is important that the terms of that agreement stipulate that they will not come after you for the difference (called a deficiency). Whether or not they will waive their right to legally pursue you for the deficiency will depend on several things, including what kind of loan you have, whether or not they are likely to be able to collect on an eventual judgment, how much of the shortage will be covered by the insurance policy they have on the home, whether or not you had demonstrated that you had a hardship which made making payments impossible, etc. In other words, there are a lot of variables.

Most important for you is that the agreement for short sale include a waiver of deficiency judgment and that you have this, in writing, prior to signing closing documents. This is one of those times when a good attorney is just what the doctor ordered to avoid addition financial liability down the road.

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