Is a Short Sale better than a Foreclosure and why? – Part I

Is a Short Sale better than a Foreclosure and why? – Part I

I continue to be amazed at the number of potential clients, with whom I have the privilege of meeting, who tell me their accountant advised them to just let the house go. Others tell me they know somebody, have a good friend, or a coworker who has provided their opinion (gained through naive experience I guess) on this topic. The consistent theme of the opinions are “just leave the house; walk away from it; why would you want to stay in the home when you owe almost twice as much as it is worth and you may die before you’ll ever make a profit on what you thought was a smart way to spend/invest your money”. There are a myriad of iterations, but it boils down to the same concept. The real estate market’s bubble burst and the values of property compared to the amount of money owed is an indigestible ratio for all parties involved.
short sale vs foreclosure property guidingThere is a very simple answer to the question above. You may share the answer with anyone with which you discuss this topic. The answer is because of Florida Law! Florida is a deficiency state. While reducing the Short Sale concept to elementary terms in the last blog, I briefly explained two of the most important legal documents included in a loan: (1) Promissory Note and (2) Mortgage.
When the Mortgagor (Borrower) stops making the required payments, such action shall be considered a default as defined within the loan documents. Upon the default, the Mortgagee (Bank or Lender) has the right to commence the legal proceedings to take the real property (collateral) from the Mortgagor. Foreclosing on the property provides the Mortgagee with the ability to have the real property sold for proceeds which shall be credited to the outstanding amount owed on the loan. Foreclosure addresses the Mortgagee’s lien on the property from the Mortgage. It does not cancel the Promissory Note.
Prior to the decline of the values in the real estate market, there may have been additional funds available after the loan plus costs, fees and penalties were paid in full. Such scenario rarely exists these days due to the values in the current depressed market. Because the total amount of money owed most likely will not be paid in full by the funds from the sale of the collateral, an outstanding amount of the debt remains after the closing.

Stay tuned for part II, next week!

DELLUTRI LAW GROUP
3002 Del Prado Blvd. South, Ste. A

Cape Coral, Florida 33904
Ph.   (239) 549-0900
Fax. (239) 549-0902

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Posted on July 17, 2013, in Legal and tagged , , , , , , , , , , , , , , , , . Bookmark the permalink. Leave a comment.

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