Home Equity Loans

bank come after me if the deficiency?

lender comes after me If deficiency of short sale rental house that refinanced and underwater. I live in California

Part of your question overlaps from some of the short sale information we have on our website. It's one of the FAQ questions

People ask questions and it's important that you can effectively and honestly communicate the correct answer.

What happens to my credit rating?

What typically happens is the loan will show up as "paid" on their credit report; however there will be a notation that says "settled for less than originally owed" or something along these lines. It is more favorable for a homeowner to short sell than to have a foreclosure on their credit report. Typically they can repair their credit inside of a year or two with a short sale on their bureau where as they would be screwed for at least 7 years with a foreclosure.

Can I make money from a short sale?

Nope. All you'll keep is your credit rating.

How do bankruptcies affect the possibility of doing a short sale?

Most mortgagees won't consider a short sale if the homeowner is in bankruptcy...why? Because negotiating a short sale payoff is considered a collection activity. Collection activities are prohibited in bankruptcy.

Stop filing bankruptcy and see if we can be successful with the short sale first! If it works, you probably won't need one.

Can the bank go after me for the difference?

The banks used to be able to and there are some horror stories of that. However, in 2007 George W passed bill HR3648 which largely prevents banks from doing that provided it is the owner's primary residence. It's not out of the question altogether but it's more likely that they will be free and clear with a bit of a setback to their credit.

You can put a clause in your purchase contract that the seller is to be "rendered blameless for the outstanding loan balance" to help you and the seller both achieve what you want simultaneously. It's not out of the question that the bank will go after if it not the seller's primary residence but it is becoming a lot less common. The only way they'll know for sure is to go through the process. Doing nothing will result in them owing the money so it's always worth a shot.

I have more than one mortgage, can we still do a short sale?

Absolutely.

Hopefully this helps and other questions you may be wondering. Because you don't 100% know for sure what the bank will do on a rental property, consider a short a last resort, not a first resort. If other options make sense for you first, then you should take them instead. Even a loan modification may be a better option for you if your new payment will cause your property to cash flow in the right direction.

Mortgage Loan Modification Relief to Stop Foreclosure