Florida Real Estate Law: Understanding the Short Sale

If you’re having trouble making your mortgage payments, you’re not alone. The troubled real estate market has left millions of homeowners unable to afford their housing payments, and even worse, owing more money on their homes than they are worth. (A condition known as being “underwater” on your mortgage.)

A homeowner in this situation will often end up having their home foreclosed on. Unfortunately, foreclosure results in a significant hit to the homeowner’s credit score and can make it very difficult to secure any sort of loan in the future.

Fortunately, there is an alternative in many cases. It’s known as a “short sale.”

A short sale allows a home to be sold for its current value, not the higher value of its mortgage. A short sale needs to be approved by the lender. It negatively affects a homeowner’s credit, though not as drastically as a foreclosure does.

Because of Florida foreclosure laws, short sales are often a much better option than a foreclosure. In many states, lenders are not allowed to collect the remainder owed on the loan after foreclosure. In Florida, however, lenders are allowed to go after borrowers for up to 20 years after the foreclosure. The unfortunate homeowner can wind up having wages garnished many years after the foreclosure.

In the case of a short sale in Florida, lenders are sometimes willing to write off the remainder owed on the loan. There is still the possibility after a short sale that the lender will try to collect the balance, but this happens much less frequently than in a foreclosure. After a foreclosure the bank is automatically free to try to collect its money. With a short sale, the lender needs to go back to court to seek a judgment, and in many cases is willing to simply write off their loss and move on.

A short sale isn’t right in every situation. One drawback is that the borrower must disclose his financial information to the bank. Occasionally this can encourage the lender to go after the borrower and try to recover funds.

However, in most cases, a short sale is a far better option than foreclosure. The credit hit is less severe, and the homeowner is less likely to face future bank efforts to collect on their losses. If you’d like to learn more about foreclosure, the short sale process, or other real estate law matters, we can help. Contact us today for more information. We look forward to hearing from you!