Do I still owe the bank after a short sale?
Maybe. When you sell your home for less than the amount you owe against it, something needs to be done about the balance left over. This is called the deficiency balance. The bank can do one of three things:
- choose to forgive this balance, known as a waiver of deficiency.
- they can ask you to pay it back by carrying a unsecured note.
- they can pursue a judgement or collection on the remaining balance.
Some states like California have passed laws that require lenders to waive the deficiency if they agree to accept a short sale. Pennsylvania does not currently have such a law so you will need to negotiate the waiver of deficiency
Do most banks waive the balance after a short sale?
Generally, most 1st position lien holders will waive the remaining balance on a short sale. 2nd liens get a much smaller portion of the funds in a short sale and as a result will generally want to make up the difference in some way. They may ask for you to contribute funds at closing, send your account to collections, or sue you in court to get a judgement against you.
There are federal short sale programs like HAFA, that require all participating lenders to waive the balance. There are other programs like the Chase Short Sale Outreach and the Bank of America Cooperative Short Sale Program that also have the deficiency waiver built in. If you are not participating in these programs, it is important that your agent negotiate this release and have it built into the short sale approval letter
Do I have to hire a real estate agent to do a short sale?
There is no state law that requires you to hire a licensed agent to sell your house in a short sale. The bank however may require that you list the home for sale with a local real estate professional to ensure that you are doing everything possible to get fair market value for the property. They can’t force you to list your home with an agent, but they can refuse to do a short sale if you don’t.
Do I have to show the bank my financial information?
Generally the bank will want to see that you do not have the capacity to continue to make your loan payments until it is paid off as agreed when you borrowed the money. Because of this, they will need to see that there is a reason for you to sell your home. If you are claiming that you can no longer afford to make your payments, they will require proof of that. This is done by having you supply tax returns, bank statements, and recent paystubs and a short sale hardship letter. There are some short sale programs that require a limited amount of documentation which would eliminate the need to supply financial documentation.
Do I have to pay for someone to negotiate my short sale?
No. You don’t have to pay to sell your home on a short sale. The commissions paid to real estate agents come out of the banks proceeds. Some states allow for short sale negotiators to collect a special fee for negotiating a short sale that will be separate from a real estate commission. It is beneficial but not necessary to hire a specialist to handle your short sale. They can often be paid by the buyer, bank, agent or the seller.
Judicial or Non-Judicial Foreclosure State?
In Pennsylvania, the lenders go to court in what is known as a judicial foreclosure proceeding where the court must issue a final judgment of foreclosure. The property is then sold as part of a publicly noticed sale. The court with jurisdiction over a foreclosure is known as the Court of Common Pleas in the County in which the property is located. A complaint is filed with the prothonotary in this court along with what is known a lis pendens. A lis pendens is a recorded document that provides public notice that the property is being foreclosed upon.
Does Seller Owe Deficiency Amount After Foreclosure or Short Sale?
Yes. A deficiency judgment may be obtained when a property in foreclosure is sold at a public sale for less than the loan amount which the underlying mortgage secures. This means that the borrower still owes the lender for the difference between what the property sold for at auction and the amount of the original loan. Deficiency actions must be brought within six (6) months of the foreclosure sale.
For a short sale, the deficiency can be waived if agreed in writing on the short sale approval letter.
State Foreclosure Laws for Negotiating Short Sales
- Section 7.1. Scope
Law which regulates lawful interest rates as to foreclosures.
- Section 7.4. Notice of intention to foreclose mortgage
Law which regulates a lender to notify a borrower of foreclosure.
- Rule 410. Real Property Actions
Law which regulates the process of an Action to foreclose on an owner.
- Rule 430. Service Pursuant to Special Order of Court Publication
Law that allows publication of an auction.
- Rule 1037. Judgment Upon Default or Admission. Assessment of Damages
Law which regulates the right of the borrower or court clerk to file a complaint against the lender.
- Rule 3104. Writ of Execution. Entry. Lien
Law which regulates how a writ of execution becomes a lien against real property.
- Rule 3180. Judgment; execution
Law which regulates how a judgment is enforced.
- Rule 3256. Praecipe for writ; mortgage foreclosure
Law which regulates the necessary information on a writ of execution in order to be valid.
- Rule 3277. Definitions – (Liens)
Law which regulates the description of various liens and judgments.
- Pennsylvania State Code