“But here’s the key point: 12 states are “non-recourse states.” In these states, the bank is prohibited from going after a foreclosure victim for the balance of the mortgage post-foreclosure sale.”


The Short Sale Scam: Most Going to Non-Recourse States that Bar Deficiency Judgments


The more I look at this foreclosure fraud settlement report, and the reliance on short sales for the allegedly positive results, the angrier I get.

Let’s first understand what the numbers refer to, when the Office of Mortgage Settlement Oversight lists $8.67 billion in short sales. That number does not refer to the sale price of the home, but the difference between the sale price and the amount owed on the mortgage. This unpaid principal balance is then forgiven by the bank. According to the OMSO, 74,614 borrowers took advantage of a short sale that qualified under the settlement, with an average of around $116,200 per borrower. This includes first and second lien remaining balances, on both short sales or “deeds-in-lieu,” where the borrower deeds the residents to the servicer or investor instead of a foreclosure (basically the same thing, only the “buyer” is the servicer or investor, instead of an outside third party).

This acts a lot like a waiver of a deficiency judgment. In the circumstance of a deficiency judgment, the bank can get a court ruling to go after a foreclosure victim post-foreclosure to get them to cough up the balance between what they ended up getting on a foreclosure sale and the amount owed on the mortgage. Banks rarely do this, for the simple reason that foreclosure victims typically don’t have a big pot of money to give them. It’s like drawing blood from a stone. So banks often waive deficiency judgments.

Be sure to check out this one in full here…