A short sale is a sale of real property in which what is gained from the sale does not cover the mortgage amount or any other debt that is on the real property. In other words, a short sale involves selling your home for less than the debt that you owe. The short sale proceeds pay off some of the balance, but the lender still holds outstanding debt. The benefit of a short sale is that it stops a foreclosure. As a homeowner who goes through a short sale, you can salvage your credit score; the harm is less than what you would face going through a completed foreclosure. Queens short sale lawyer Shane D. Scott can advise you on whether a short sale is right for you.Short Sales
If you become unable to satisfy your mortgage payments, it may be possible to negotiate with a lender to obtain a loan modification or refinancing. However, if you cannot reach a new loan agreement, and you owe more than the value of the real property and would prefer to avoid foreclosure, a short sale might be appropriate.
In a short sale, the lender agrees that you can sell your home or property for less than what you still owe on the mortgage to satisfy the debt and avoid foreclosure. Not all lenders accept short sales, and some may find it more financially worthwhile to foreclose. When lenders accept a short sale, they are willing to release the lien that they have against the home for less than the outstanding mortgage balance. However, some lenders may agree to a short sale because foreclosure is more expensive, may involve legal obstacles, and takes a year to complete. Moreover, a homeowner who does not make mortgage payments contributes nothing to the escrow account that pays real estate taxes and homeowners’ insurance; as a short sale attorney in Queens can explain, this lack of contribution forces the bank to carry the cost of the home to protect the collateral. A lender hoping to avoid carrying this cost is more likely to agree to a short sale.
To avoid a deficiency judgment, your short sale agreement needs to explicitly state that the lender waives its right to the deficiency. When your short sale agreement does not include a waiver, the bank may sue for the deficiency judgment.
You should also be aware that there may be tax consequences in the event that the bank forgives the deficiency. Depending on the circumstances, the forgiven sum may be treated as income by the IRS. An attorney can advise you on whether you may face this situation.Multiple Lenders
When there is more than one loan securing real property, all of the banks or lenders need to agree to the short sale. There is not much incentive for second or third lien holders to agree to the short sale, but if the first lien holder agrees, subsequent lien holders may be offered a small portion of the proceeds so that they agree to the sale as well. A Queens short sale attorney can help you navigate this process.What is a Deficiency Judgment?
When your home sells in a short sale, you may need to pay a deficiency judgment. A deficiency is the difference between the total debt held on real property and the sale price. The deficiency judgment is a personal judgment that allows the bank to use various collection methods like levying your bank account or garnishing wages to collect the deficiency.
In New York, there is no law that stops a bank from obtaining a deficiency judgment after a short sale, as long as the bank does this within 90 days of the consummation of the sale; a sale is consummated once the deed goes to the purchaser. Generally, banks make requests for deficiency judgments at the same time as they file a motion for an order to confirm the sale with the court.The Fair Market Value of the Property
There are specific limits to a deficiency judgment under New York Real Property Law section 1371. For instance, the calculation of the deficiency is restricted to the fair market value of the property as of the date when the premises were bid on at auction or the nearest date before then on which there was a market value. When a motion is made for a deficiency judgment, the court will determine the fair market value. If there is no timely motion for a deficiency judgment, the proceeds of the sale are deemed to fully satisfy the mortgage debt. The lender loses the right to recover the deficiency in any later proceeding.Retain a Short Sale Lawyer in Queens When Facing Foreclosure
A short sale can avoid months of stress and uncertainty for a homeowner, but it is important to make sure that you understand the transaction. If you are worried about the legal consequences of a short sale in Queens, you should consult experienced real estate attorney Shane D. Scott about your situation. Call us at (800) 230-0744 or complete our online form.