Crafty Mortgage Lenders Sneaking "Deficiency" Clauses Into Short Sale Contracts?

In San Diego, California, North County Times reports:

• A "short sale" might not be the end of a homeowner's problems. The practice, which has exploded in popularity as homeowners struggle to pay their mortgages, is supposed to allow a borrower to sell a home for less than the mortgage amount, walk away, and avoid a credit-killing foreclosure.

• Not so fast, say local real estate attorneys. Lenders appear to be inserting language into short sale contracts that allow them to sue for any "deficiency," or the amount lost by a bank by selling a home for less than the mortgage ---- opening the door to collection agencies and court judgments that can run into the hundreds of thousands of dollars for some North County homeowners.(1)

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• Attorneys say such clauses mean that a borrower's troubles might not end with the short sale ---- the lender could sue the borrower for a deficiency at a later date or turn over the unpaid debt to collectors after the short sale closes. Indeed, under some conditions borrowers may face fewer troubles by letting their properties fall into foreclosure.

For more, see Lawyers say lenders set stage to collect on 'short sales' (Foreclosure may be better option for some struggling homeowners).

(1) Reportedly, one real estate agent who specializes in short sales said about 50 percent of the short sale contracts he has seen include the language before he requests its removal. The North County Times reports that it obtained a short sale contract issued by Countrywide Financial Corp., which together with parent company Bank of America services roughly 20 percent of the mortgages in the nation. The contract warned the homeowner, who owned a house in El Cajon, that Countrywide "may pursue a deficiency judgment for the difference in the payment received and the total balance due ... " The owner, who is still negotiating with the lender, declined through a lawyer to comment.