Birmingham MI Short sale tip #59, "What do you mean I still owe money?"Mike Sher (248) 644-4700 x242 Max Broock Realtors Certified Distress Property Expert

Often Short Sale sellers are told that in a Short Sale you will not have to pay the bank back any money.  Some times that is true and sometimes it is not.  Remember when you got the loan you signed both a mortgage and a note.  The MORTGAGE is a lien on the home so if you default on the note, the bank has the right to seize the home as collateral.  While the NOTE; is a promise to pay the full amount of the loan no matter what. 

A Short Sale is when the lender releases the lien/mortgage and the borrower/seller then can sell the home for less than the note value.  BUT, your lender does not always release the amount owed. The borrower might have to sign a promissory note or renegotiate the terms of the deficiency post short sale closing.

Many borrowers/sellers are unaware of the fact that they might still be on the hook for the remainder of the loan until the day of closing or worse months after.  The borrowers/sellers post closing obligation is often determined by his/her future collectability and whether MI (Mortgage Insurance) chooses to be difficult.  Collectability is determined by factors like age, income, credit, employment and future income potential.  If the bank thinks the borrower is doing a short sale by choice and less by economic necessity, that borrower should expect to contribute in some way or this short sale is DIA.  As for the loans with MI, you should expect a fight from them no matter what the borrowers reasons are for the Short Sale.

Many borrowers/sellers become angry and decided to give up once they are aware of their need to contribute to the short sale.   They stop making payments and force the bank to foreclose on the home in hopes that doing so would hurt the bank. Sadly that is not true and the fact that CITI bank had record profits in 2010 shows that banks are just fine.   Plus in MICHIGAN it is important to understand that in Foreclosure the borrower will often owe more money and do great damage to their credit then if they completed the short sale.  That is why a Short Sale is often the better route even if you owe some money post closing then a MICHIGAN foreclosure.  My next blog will be on the ramifications of Foreclosure.  And like always seek legal and financial advice from an attorney and/or CPA before acting.

Mike Sher, Associate Broker,Max Broock/ Real Estate One, 248 644-4700 x242  ***Please be advised that Mike Sher, Katherine Green and Max Broock Realtors are not attorneys nor tax professionals. Our correspondence should NOT BE interpreted as that of the advice of legal counsel or tax professionals. We recommend seeking the advice of a tax and or legal professional with matters pertaining to Short Sales and other related questions.   ***