If you are spending any time talking about real estate and loans, then you have probably heard the word recourse and non-recourse. Here in the Salem Oregon area, most home loans are non-recourse loans. What this means is that if the bank forecloses on your home, the home itself is the sole means they have for collecting on the loan. The home is the collateral and that’s it.
A recourse loan means that if your home goes into foreclosure and it doesn’t sell for what the bank is owed, then they can come after you for a “deficiency judgement” that is what is still owed them. Now here in the Salem Oregon area, short sales are starting to be more common. I see short sale listings on a daily basis these days. With the words short sale the “in” buzz word in the media these days, it makes sense that homeowners struggling will want to try a short sale and partially salvage their credit.
What sellers thinking about a short sale need to know, is that banks are being sneaky…well, I think they are just counting on sellers to not read the fine print. What is the fine print saying?
Yep…some banks, when they approve a short sale for a seller, are inserting language into the real estate contract, turning that non-recourse loan into a recourse loan. They are agreeing to the short sale to clear the title, but are creating a contractual obligation for the seller to repay the loan, regardless.
Many sellers are taken unaware because they didn’t read the fine print and then the collection agencies start calling. I know there are some of you out there are really struggling, but please make sure that you read everything the bank sends you before agreeing to the short sale.
In some cases, foreclosure makes more sense than trying a short sale. Sounds crazy, but it’s true.
Short sales are not for everyone.