This is not legal advice. If you intend to take it as such, please quit reading now and consult an attorney directly. We are not one! Our dialog is strictly from a real estate transaction basis and is not legal advice. We advise all of our short sale sellers to contact an attorney for specific legal advice.
There has been a lot of confusion recently on the deficiency balance issue when there is a Jacksonville short sale. If you have a foreclosure, Florida is a deficiency state, also called a recourse state. This means that the lienholder(s) can pursue you for the deficiency balance (difference between what they recover and what is owed on the loan after all of the foreclosure costs are added) This is unlike some other states that will not allow a deficiency after a foreclosure. Florida foreclosure law can be found here. This is also where you find details on a deficiency judgment in foreclosure. It is when you short sale that a lot of confusion comes in. A very general definition that we sometimes hear of a short sale is "when the bank agrees to forgive the loan balance and lets you sell the home for what it is worth." This makes us cringe. This is NOT an accurate definition. The bank is agreeing to a lien release. What happens to the "balance" is a different story. Banks are not very forgiving these days. It actually seems like the more they have gotten in taxpayer money, the less forgiving they have become. The truth is just because you complete a Jacksonville short sale does NOT mean there will not be a deficiency judgment down the road.
The players involved in a foreclosure or short sale are (simplified):
- The servicer. This is who you send your money to every month. (They can actually make MORE money when your loan is in default than when it's not.
- The noteholder. This is who has physical possession (supposedly) of your note. It can be VERY hard to get accurate information about who this is. Crazy enough, many servicers will refuse to tell a borrower who they actually owe the money to. Sometimes, we would argue, it's because they aren't even sure themselves.
- The PMI or MI company (mortgage insurance). Think you don't have this? Well you may be incorrect! Many people who put 20% down on their first mortgage are finding out that they do, in fact, have PMI! We are starting to see this a lot. Borrower puts 20% down to avoid PMI only to find out during the short sale negotiations with the lender that there is PMI because they are making a cash or note demand.
The short of it is that any one of these parties can decide you owe them money still....and then go after it.
The reasons to still do a Jacksonville short sale anyway even if a lender does not waive their right to later pursue you for a deficiency?
Faster Credit Recovery. Current Fannie Mae guidelines allow you to purchase a home faster, sometimes years faster, if you complete a short sale instead of a foreclosure. FHA guidelines also allow you to purchase again years sooner if you sold your home in a short sale instead of having a foreclosure on your record. Many sellers tell us, "We don't care about that, we never want to own a home again." I would be willing to bet that you will change your mind down the road.
You Control the Deficiency. Once the home is foreclosed on you have no control whatsoever of the contract price or terms. The simple fact is that REOs / Foreclosures are almost, without exception, priced under Fair Market Value. This can translate to big $$$. For example, on one home we followed, the bank failed to act on a short sale (the home was only around $10,000 short of full payoff), the home was sold for $50,000 less once they foreclosed on the same home. Even though the bank FAILED TO TAKE THE SHORT SALE for $50,000 more they can still go after the seller for their own decision to underprice the home for $50k. This defies common sense...but it is happening. In a successful short sale you know roughly what the deficiency is that they may later pursue. In a foreclosure, you do not know how low they will eventually sell the home for, nor what outrageous expenses they will tack on to the bill to arrive at the deficiency.
There is a Chance That the Deficiency Can Be Waived. This varies greatly by bank or investor (whether you are in the HUD PFS program or HAFA) and seems to be in a constant state of change. This may or may not ultimately happen. But you can try to negotiate this when you are involved in a short sale. This is not something you negotiate in a foreclosure.
You Maintain Your Dignity. Foreclosure is an emotional black hole. It is something that many people never get over. In a short sale you feel like you are somewhat in control as opposed to a foreclosure where everything is out of your control.
Whether to short sale your home or not is a personal decision. You have to weigh the costs and benefits to you and decide. Regardless, you should be aware going in that a deficiency IS possible. We work with both buyers and sellers of Jacksonville short sales and can help you determine if a Jacksonville short sale may be right for you.