When such a property goes on the market it is commonly known as a short sale. Again, the current value of the property will not cover the mortgage or the lien that the bank holds on the property.
The property is being sold for less than the balance due on the mortgage. This is different than a foreclosure.
But you may not have heard about deficiency judgments and if you are on the receiving end of a deficiency judgment is it a rude shock. It is also a threat to your financial planning.
In a deficiency judgment the lender can seek the balance of what is owed on the mortgage. As a simple example, if the remaining mortgage on a property is $500,000 and the property sells for $400,000, the borrower may have to pay the difference of the $100,000 plus any applicable interest.
Yes, they can owe the money, even if they are no longer living in the property.
Lenders in some cases can obtain deficiency judgments years after the property has been sold.
Beware: Some lenders wait until the client is more solvent, then sue for recovery and obtain a deficiency judgment.
Note: Lenders will often sell such obligations to debt collectors who will pursue the borrower for the deficiency plus stiff interest penalties.
A deficiency judgment can stay with a person until it is paid off, and can follow from one property to another.
There are a few states where anti deficiency laws exist.
If your property is being sold for less than the balance of the mortgage owed, seek professional guidance about deficiency judgments. What you don't know can hurt you.
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