Deficiency Judgments in Utah: The Elephant in Every Transaction
Posted by Amber Sorensen on Thu, Aug 25, 2011 @ 10:27 AM
There’s no hiding the fact that going through a short sale is extremely stressful for our sellers. It’s a time where the American Dream is being ripped from their hands. Most of our sellers came into this situation by little to no fault of their own: due to medical issues, job re-locations or a breakup of a family. It’s never lost to me that we meet our clients during one of the hardest times of their life, and they are counting on us to do everything we can to make the consequences to them as minimal as possible with a hope that they can start fresh and rebuild their financial security. During the process, we discuss many areas of concern, but one topic that never fails to come up is deficiency judgments in Utah. What is a deficiency judgment? According to Wikipedia, it’s an unsecured money judgement against a borrower whose mortgage sale did not produce sufficient funds to pay the underlying promissory note, or loan, in full.In the state of Utah it is legal for a lender to pursue deficiency judgements after foreclosure or a short sale. It’s unsettling for anyone in financial distress to realize that even after losing their home, they may still be left exposed and vulnerable. There are a few questions we get asked in every transaction: 1. How will I know if the lender will come after me for the deficiency?Once a short sale is approved, the 3rd party lender will issue a written approval letter. It’s within this letter that we can find verbiage clarifying whether they are waiving their rights to the deficiency amount or not. It’s a Robinson Team policy to make sure we fight to have the deficiency waived, and we don’t advise our clients to move forward until we’ve done all we can to complete this task. 2. Is there anything I can do to guarantee the deficiency will be waived? There are a few different programs that you can apply for, which will guarantee the deficiency will be waived. Each of these programs have their own pro and con list and some we don’t recommend often. Another option is to offer the bank a “cash contribution”. A cash contribution means you’ll come to the closing table with cash in hand. This amount must be approved and agreed to by the 3rd party and it’s common for banks to request cash contributions prior to issuing an approval letter. Typically cash contributions range from $2,000-$20,000.3. How does the lender decide if they’ll come after me or not? Every lender has their own policies regarding how they decipher who will get a deficiency waiver, and who won’t. Some banks decide this based purely off numbers and if they are making enough from the sale, other banks look at the whole picture and take into account the circumstances leading up to the short sale. Some banks have a strict policy that no deficiency will be waived, while other banks release all deficiencies regardless of circumstances. As you can see, Utah deficiency judgments aren’t black and white, there are many shades of grey and it can be a nerve-racking process waiting to find out what hand of cards the lender is going to deal. Because we are solely licensed in real estate, we always recommend that our sellers consult with an attorney and/or certified public accountant so that they can be clear on the pros and the cons of moving forward with or without the deficiency waived. Each situation is different and unique and each client deserves to know exactly what they are facing after the dust settles.
If you are facing Utah foreclosure or considering a short sale of your home, contact the Robinson Team. We specialize in foreclosure prevention and short sale services. We have helped hundreds of homeowners avoid foreclosure, minimize credit damage and recover financially since 2003.