Short Sale

Short Sales and a Borrower/Sellers Continued Liability

So you’re a homeowner and you’ve sold your home.   If you’re one of the thousands of people who sold your home in 2008 or 2009, it’s likely that your sale was a “short sale” or a transaction when the lenders accepted less to satisfy the lien than was owed on the underlying debt.   Likewise if you are one of the 1658 homeowners who the Pinellas County Realtor Organziation lists as a “Pending/Distressed” sale in their September Foreclosure/Short Sale Activity Report (the full text of which can be found here at it’s likely that your transaction will involve a short sale transaction.

The Lender Will Release the Lien!

In each of the short sale transactions that I’ve reviewed over the last several months, the lender will issue a payoff letter which states generally, “The lender agrees with this short sale transaction and will release the lien on the subject property upon receipt of $150,000.”   The problem with this letter is that while it clearly states the lien will be released it is absolutely silent as to whether the lender will hold the borrower liable for the difference between the payoff funds received pursuant to the letter and the balance due on the mortgage.

The Borrower Is Still Liable on the Note!

If the payoff letter does not explicitly state that the borrower is released from all further liability, the borrower may be surprised to find the lender actively pursuing the balance owed immediately or up to five years after closing.   If there is a foreclosure case, the borrower may be surprised to find that the case was not dismissed and the lender just keeps right on pursuing them.   In most cases, the lender is perfectly within its rights to do so because the payoff letter was absolutely silent as to the lender dismissing the case.

The bottom line is if you’re a homeowner considering a short sale, you need the skill of an experienced real estate attorney to advise you in the transaction.   If you’re a realtor or other professional involved in short sale transactions, you owe it to yourself and your clients to obtain the advice of an experienced attorney.   I remain concerned that many consumers are being convinced to accept short sale transactions without understanding the consequences of the language as cited above.

For more information contact Matt Weidner at

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