Foreclosure instead of a short sale.

The lender or the bank has the right to chase the borrower for the amount of the loan that remains pending even after the execution of a short sale or foreclosure. This is known as the deficiency judgment.

However at the time of the short sale or foreclosure if the lender waives away the balance then the borrower can live out life without haunting fears of being pursued and have all his future earnings nabbed. The banks however are often reluctant to write off the balance. However in a short sale if the lender wants to pursue the lender a court permission has to be taken that remains in force for two decades.

At the close of the foreclosure proceedings the court automatically awards a deficiency judgment to the lender and the bank is at liberty to stake its claim without having to go to the court for permission again.

Paul Baltrun of LaBovick & LaBovick, a legal firm said, “In the past people just wanted to move from the property and get on with their lives and didn’t understand what the lender’s rights were in terms of pursuing a deficiency claim”. Today however the foreclosure crisis has made the public more alert about the fact that lenders can chase them even after completion of the foreclosure process “the nightmare can continue”.

Apart from this shadow there is another cloud – foreclosure or short sale can badly affect the credit score. Fair Isacc Corp developed the FICO score – something that is widely in use. It measures the credit risk. The foreclosure marks are slightly worse than that of a short sale. In Florida the deficiency judgment has a huge impact on the credit ratings; it might cripple the possibility of purchasing another house for a good number of years.

Daniel Poulos of Elite Lending based in North Palm Beach said that if the borrower does not clear the deficiency it may be as long as two decades before one is qualified to contract another mortgage.

Experts opine that in some situation it is more prudent for the troubled house owner to opt for foreclosure instead of a short sale. In the case of the latter full financial information has to be given to the lender prior to the latter giving the nod. The logic is to find out if the person can afford to be current on the mortgage. But if the lender is kept in the dark then it will lessen chances of being pursued for deficiency.

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