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Debt following a short sale.Caution: Your May Still Owe Your Lender After A Short Sale
(8/3/09)

Many homeowners facing foreclosure or in homes worth less than their mortgage are opting for “short sales,” an agreement with their lender to allow a sale for less than the amount owed. And most of these home owners assume that once the sale is consummated, their obligation ends; however, they could be in for an unpleasant surprise.

Some banks, are quietly adding a clause to the short sale agreement that allows them to pursue the seller for the difference between the amount received and the amount owed. While banks are currently ignoring their ability to pursue sellers for additional money, it is possible that action could be taken at a later date or the debt could be sold to a collection firm who could sue for the balance owed.

Homeowners who plan to seek relief through a short sale should be aware of the potential for their lender to seek damages after the sale and should request that the offending clause be removed from the contract. Strangely, many banks will readily remove the clause if asked.

As with all real estate transactions, sellers are advised to be aware of what they are signing. And, the best advice is to seek the help of an experienced professional to aid in the short sale process.

 

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