Posted by: jonathanwarren | May 27, 2011

Short Sale Blowback: Lenders ready to attack

Thought you got rid of that mortgage deficiency when you short sold, or walked away from that property?

Think again.

Most short sales and walk-aways allow for the mortgage lender to retain the ability to go after you for six years after they take a deficiency loss.  Deficiency is the difference between what you owed on the property, and the amount the lender received for it.  In may cases, bankruptcy won’t save you because mortgage deficiency was specifically addressed by the finance industry in the last round of changes to the law.  In some cases, even your IRA or 401(k) is exposed if the lender comes back around.

The common response to this is that the lenders can’t afford the political risk to being so aggressive, especially after taking bailout money.  They won’t.  They’ll sell the debt you owe instead.

CNN Money: Vanessa Corey thought her mortgage deficiency had been negotiated away. Then she got sued.

Junk debt buyers (aka JDB’s, Zombie Debt Buyers, Bad Debt Buyers) are buying up the deficiencies from the original debt holders, for pennies on the dollar.  They then obtain deficiency judgements and attack you to collect.

Junk Debt Buyers have the same right to collect the debt that the original lender did, with none of the political risk.  The JDB didn’t take bailout funds, and may not owe any favors to politicians or regulators.  They are in and out for the kill, and they don’t take prisoners.

Protect yourself in advance

If you are preparing to sell or walk away from a property leaving a deficiency, take the time to prepare.  By preparing in advance using a simple and legal trust method, you can avoid risking assets to junk debt buyers.

If you don’t have time to prepare, or have already executed such a sale, there are still steps you may want to take in order to lessen the potential for loss.  Take the time to learn about asset protection, and protect yourself from further damage.

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