If a lender allows a short sell of a property in foreclosure (worth $100,000 with a recourse loan balance of $95,000) for $55,000 will the seller of the home (owner in default):
be saved from a foreclosure listing on his credit or be protected from future credit damage in regards to the property sold and
will he or she be shielded from a deficiency judgment ($95,000 -$55,000 = $45,000) since the loan had recourse.
What would the answers to these two questions be if the loan was nonrecourse?
Kenrick,
I’m not an expert on this stuff, but here’s my guess…
A short sale would not show up as a foreclosure on the seller’s credit either way. There may be some language about a short pay reflected as loan payment satisfied or something to that effect, I don’t know.
My understanding is the lender can go after a deficiency judment OR 1099 the seller for the debt relief. Rumor is the 1099 is most common. And no, with a non-recourse loan, I wouldn’t think a deficiency judgment would be doable, but a 1099 could be.
That said, please ask someone knowledgeable and report back. These are good questions. Thanks.