Some former homeowners in Arizona are finding they are still in debt to mortgage lenders even after completing a short sale, a newspaper said Monday.
Short sales allow people to sell their homes for less then they owe on their mortgage to avoid foreclosure. But unlike foreclosures, short sales are not typically covered by Arizona’s anti-deficiency law, which protects most distressed homeowners if lenders foreclose.
The law also bars lenders from seeking payment from the borrower if the foreclosed home doesn’t sell for as much as the amount owed on the mortgage.
Some lenders apply the same protection to borrowers who complete a short sale.
But a growing number of former homeowners in the Phoenix area are receiving unwelcome calls and letters from lenders or collection agencies saying they still owe on mortgages for houses they no longer own, the Arizona Republic said.
The short-sale concept is specifically designed to help homeowners avoid having to pay their lenders more money, so some sellers have been careful to negotiate their deals so the lender can’t later seek payment. Those who haven’t done so could be at risk.
“I know that there is a great deal of confusion and uncertainty about this issue,” said Michelle Lind, general counsel for the Arizona Association of Realtors.
Real estate lawyers differ on which situations are subject to the anti-deficiency statutes.
“The law is unclear and there are many variables that factor in,” Lind told The Arizona Republic.
Tricia Goldblatt sold her Phoenix home through a short sale last year after losing her job as an executive assistant at an engineering firm. A few months ago, she started receiving calls from a collection agency.
“They are telling me I owe $10,000. I did a short sale to get out from under my mortgage,” she said. “I don’t have that money. I had to move in with my mom.”
Goldblatt thought the do cuments for her short sale specifically stated her liability for both her first and second mortgage would be terminated. But the collection agency said it bought the note on her home-equity loan from her lender and wants to be paid.
Home-equity loans, or second mortgages, appear to be the biggest pitfall in such cases.
Plunging home values in metro Phoenix left many homeowners unable to sell their homes for enough money to cover what they owed on their first mortgages, let alone a second mortgage. In short sales, lenders agree to let homeowners sell for less than what they owe. The seller typically gets nothing, but the lenders are at least paid a portion of the original principal.
Some homeowners can work out deals to close their second mortgages.
Some lenders seek to recoup more of the debt, requiring sellers to sign promissory notes to pay a portion later.