Short sale is a real estate transaction with the sale price less than the remaining balance on the mortgage – that is, the sale of a house at a loss, realizing its negative equity.

If other options are not available—a homeowner is unable to qualify for a refinance or loan modification due to loss of income or a high debt-to-income ratio—a short sale may be the last alternative to avoid foreclosure.

Similar to an ordinary sale, but with the acknowledgment of the bank that no other option exists, the home is listed with a real estate agent and the sale proceeds as an ordinary sale would. The bank needs to approve a short sale, and to see supporting documentation regarding your financial cirucumstances.

It is important to be aware of the possibility of a “deficiency judgment,” wherein the mortgage holder can sue for the difference between the amount of the proceeds and the amount outstanding on the loan. Your attorney should insist on a deficiency waiver in a short-sale agreement.

Read more about Deficiency Judgments and how they can affect you.

At Todd Murphy Law we can help in this process, negotiating with the bank to obtain approval for the short sale, ensuring that the application is complete, and negotiating a waiver of deficiency.

 

New Jersey is a “recourse state” in mortgage law, permitting lenders recourse in the form of a lawsuit to recover the difference between sale proceeds and the balance on the mortgage in the event of short sale, deed-in-lieu, or foreclosure.

There are important limitations in New Jersey law, among them that the suit must be filed within 3 months of the sale. If the suit is filed and the judgment obtained, the lender has 20 years to attempt to collect it. In the event of such a judgment, bankruptcy is a tool that can be used to wipe the debt.

Will I be affected by a deficiency judgment?

Deficiency actions are more likely to occur when the borrower has other assets or is not delinquent on other loans, creating the appearance of the ability to repay. If the borrower is late everywhere and has no assets, the lender may instead issue a 1099 to the borrower, declaring the amount of the deficiency as a payment to the borrower. In this instance, the borrower may have incurred a tax liability, depending on when it happened. The Mortgage Forgiveness Debt Relief Act of 2007 eliminates such tax liabilities if the sale occurred between 2007 and 2013.

There are several defenses against deficiency judgments. One is a counterclaim regarding the fair market value of the residence. Another is negotiating a waiver of deficiency in the sale. The final defense would be a bankruptcy filing after a judgment.

When confronted  with the possibility of a deficiency judgment, qualified legal advice is essential.Todd Murphy Law can help every step of the way dealing with deficiency and its impact on your financial future.

Call Todd Murphy Law today!.