A word from The Tim: This post is from long-time Seattle Bubble participant Tim Kane (a.k.a. “S-Crow”). With short sales becoming more common every month in the Seattle area, I think Tim has struck on an interesting topic that not many other people are talking about. We already know what a hassle short sales can be for the buyer, but what about the potential mess the seller could find themselves in after the sale closes?
Note: The opinions expressed in this post are in no way legal advice nor should anyone take any commentary on this topic through this or any other blog as a substitution for legal advice. Sellers who are considering or currently engaging in a short sale should consult with an attorney.
If a lender refuses to forgive a deficiency in a short sale (will not provide letter of forgiveness), can the seller file bankruptcy and name the lender even if the lender does not pursue the deficiency?
- Let’s face it: Many sellers file bankruptcy after a short sale is completed to be rid of their debts and start with a clean slate. Can the seller list the “deficiency” as part of their bankruptcy even if the lender is not pursuing the debt? I think many would like to know.
- The banks that are not providing forgiveness of debt letters as part of a routine short sale are in effect reserving the right to pursue the deficiency at some time in the future.
- Would it be prudent for the seller to file bankruptcy right after the short sale when they don’t have assets or wait until they are pursued for the debt (if they ever are)?