Judgement For Short Sale
I am working with a client to get financing for a new purchase. Back in 2002 they sold their house with a Short Sale to avoid foreclosure. The second mortgage took $5k for a $32k mortgage balance. On their credit now, there is a judgement for $29k.
They can only get financing if the judgement has been satisfied. My question is since the lender took $5k for the payoff, is the borrower still responsible for the judgement?
Update:
After searching public records, it appears as though the judgement was filed because they were behind on their payments. After the judgement was filed, the short sale occured and the property was sold. With the lender accepting the $5k for the payoff, this should have satisfied the judgement, correct?
Also, the judgement filed on 10/1/02 in public records shows $33999.21. The judement on their credit shows a file date of 10/1/02 and is for $29688.
Please advise...
[ Edited by estateXchange on Date 05/21/2007 ]
Thats exactly what it is - an unsecured note with a balance due. I usually have sellers file BK on it , their credit is a wrecked anyway ,they can move on and start fresh. No other way around it.
A short sale does not prevent the lender from obtaining a deficiency judgement for the shortfall. If the lender did not seek a judgement, then the lender would have issued a 1099-C for the amount of cancelled debt. In this case, the borrower would have had to recognize the cancelled debt as ordinary income and pay income taxes on that amount.