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How to Respond to a Lis Pendens Foreclosure Filing. Is a Short Sale the Solution?

Best Way to Respond to a Lis Pendens Foreclosure:
If you want to explore the option of selling your home as a short sale to avoid foreclosure, you’ll want to respond to the foreclosure filing as soon as possible. Follow the instructions so you respond within the allowed time frame, and keep a record of all communication.  You will need proof that you have listed your home with a short sale Realtor.
In case you were wondering, no, you are not allowed to sell your own home as a short sale.  Attach your agent’s listing agreement and the MLS printout.  Along with these documents, you also will want to send your hardship letter.  Make sure you send your documents via certified mail with a return receipt, and keep a copy for your records.
Why is a short sale better than a foreclosure?  Should you risk the lender suing for deficiency rather than having a foreclosure on your record and having both lenders sue for deficiency after the fact?

This is what most attorneys will tell the clients:  It is better to do a short sale than a foreclosure.

Here’s why:

The amount of the deficiency will be much higher if it goes to foreclosure.  An attorney can defend the deficiency judgment far better than defending the actual foreclosure.

Look at it this way: The first mortgage deficiency is more than $120,000.  The second mortgage deficiency is about $85,000.  If it goes to foreclosure, the lenders can sue for a deficiency of more than $200,000, and the homeowners’ credit is much worse off because they have a foreclosure on their records.

If the homeowners do a short sale, the first waives deficiency and the second doesn’t.  The homeowners’ risk of a judgment is down to $85,000 (or whatever the balance is), and they don’t have a foreclosure on their records.   I have heard that attorneys are negotiating the deficiency after closing and are having good results.

In some cases homeowners have filed for bankruptcy and the deficiency goes away.  I am NOT recommending this, because I cannot give legal advice.  I am only relating what attorneys have said.

No one gets out of a short sale unscathed.  If deficiencies are waived, homeowners’ credit is still marred for a couple of years, although sometimes less.

If, after all is said and done, the homeowners don’t want to close, they are under no obligation to do so.  However, the property will go into foreclosure, and they run the risk of a deficiency of over $200,000.  That’s the reality.

I have asked all my sellers that have not had deficiencies waived to please let me know if a lender has come back to sue them.  I have not heard back from anyone, but that doesn’t mean lawsuits haven’t happened.

Which Lenders Waive Short Sale Deficiency Judgements?

For future reference, the lenders that I know that do not waive deficiency without a large cash contribution are almost ALL credit unions, SunTrust Bank (2nds and helocs) and Wells Fargo Helocs.  There are others, but these are the main ones.

Who Pays The Realtor Commission on a Short Sale?

You are not responsible for paying a Realtor’s commission or any of the customary seller’s closing costs if the bank approves the sale of your home as a short sale.

To find out if you qualify for a short sale in the Tampa Bay Area, please fill out this form so we can determine your property’s value.

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Written by Rae Catanese, Realtor

Licensed Realtor since 2002, Tampa Bay’s own Rae Catanese regularly gives expert advice and insider tips about the Tampa Bay real estate market via her blog, The Tampa Real Estate Insider. If you are thinking of buying or selling a home in the Tampa, St. Petersburg or Clearwater areas-then this blog is for you. I typically post articles once a week. To make sure you don’t miss my newest posts, you can subscribe here! Have a real estate question? Email me here!

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