Real Estate Partner Prudential NW Tells It Like It Is: Selling Short vs. Foreclosure
Recently The Washington Realtors Association created an advisory in cooperation with the Department of Licensing and the Department of Financial Institutions.
We asked our Real Estate partner Prudential Northwest Realty to explain exactly what this means to our Readers, especially those who may be in the unfortunate position of having to sell short, or walk away from their mortgages.
From the desk of Lori Alden, Managing Broker of PNW in Burien, serving all of South King County, comes this advice:
Short Sale Seller Advisory
Recent economic challenges have resulted in many homeowners needing to sell their home but owing more on their home than the home is worth. This advisory is intended to provide information to sellers in that situation.
A short sale is a real estate transaction in which the sales price is insufficient to pay the debt(s) and obligations encumbering the property along with the costs of sale, AND the seller is unable to pay the difference. Every short sale is dependent upon the seller’s lender(s) consenting to the transaction and agreeing to release the lender’s security interest in exchange for less than what is owed. In some cases however, the lender’s approval of a short sale does not necessarily mean the lender relieves the seller of liability for repayment of the entire debt.
It is possible the seller can sell the home and still owe the unpaid difference, plus interest and penalties, to the lender (the “deficiency”). The lender may then seek a deficiency judgment against the seller for this difference. . If the judgment is issued by a court, it could be in effect for up to 20 years if not paid sooner This is one of the most fundamental issues that sellers must address in considering whether to sell property as a short sale.
Simply “Walking Away” from the property through foreclosure also does not necessarily relieve a seller of these debts as while Washington State is a “non-deficiency” state, that only pertains to the foreclosing party. A homeowner could lose their property to foreclosure generally to the 1st mortgage lien holder and still owe the balance(s) from the 2nd mortgage or other lien holders.
A short sale is a very complex transaction that involves numerous issues as well as legal and financial risks. This Advisory is designed to address some of these issues and risks, but does not purport to be fully comprehensive. The Advisory also does not replace the need for legal counsel, tax and other professional advice. All sellers are advised to seek the advice of a lawyer and tax professional before proceeding with a short sale.
We will continue to post valuable real estate information to help keep our neighbors educated and informed during this every changing market.
Next article: What to do Before Proceeding with a Short Sale
(Prudential Northwest Realty is here to help with all your real estate needs. If you or someone you know is looking for a trusted professional, please contact Lori Alden at 206-244-6400 to match your needs with a licensed professional.)
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