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Experts say it's best to know your risk when considering a short sale. July 05, 2010|By Mary Shanklin, Orlando Sentinel With more than half of the Central Florida's homeowners owing more for their homes than the properties are worth, the question for some has become: How do I get out of this? Of all the existing-home sales reported by Realtors in the core Orlando market in May, 23 percent were short sales. They are called "short" sales because the sales price come up "short" of, or less than, the amount owed on the mortgage. What these homeowners, whose loans are "underwater," may not realize is that they could successfully complete a short sale of their house but then face a lawsuit from their lender for not paying off the entire loan, a shortfall known as a "deficiency." At particular risk of being hit with such a debt judgment are owners of second homes and investment properties, homeowners who haven't faced any kind of financial hardship, and owners who have a second mortgage. "That's going to be a huge problem moving forward in the next few years," said Orlando lawyer Matt Englett, who specializes in home foreclosures. "These people who use Realtors to advise them on the transactions can end up facing deficiencies, and the deficiency notes will go to third-party collections agencies, and they will start suing and progressively pursuing those people." Homeowners have several options if they wish to avoid getting calls and lawsuits from debt collectors. In a mortgage document called the "payoff letter," a lender may include a blanket provision stating that it reserves the right to sue the seller at any time for unpaid mortgage debt. At the very least, Englett said, sellers need to make sure they do not give lenders that right. Some lenders, particularly smaller ones, have been willing to state just the opposite — that they will not pursue any mortgage debt from the seller, he added. Simply asking the lenders to cooperate by removing any wording about collections isn't enough, Englett said. The seller is usually faced with building a case that details errors and omissions made by the lender in its mortgage documents, to gain leverage and force the lender to forgive the debt. A new option that emerged in June is a federal program that calls on banks to forgive some of the mortgage debt of certain, qualified short-sale sellers. To qualify, sellers must: Meet the criteria of the federal government's Home Affordable Modification Program.
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