Deficiencies In A Short Sale

A short sale is an alternative to a foreclosure. When the borrower can no longer make the mortgage payments as agreed, he/she may choose the option of working with the lender to agree to accept a payoff of less than the balance owing on the loan. If the lender agrees to allow the borrower to sell the house for less than the original debt, it might not agree to release the borrower from the loan debt. Sometimes, lenders only release the lien so that the buyer at the short sale can take the house without any clouds on the title. However, releasing the lien does NOT relieve the borrower from owing the remainder of the loan. The lender can now sue the borrower on the promissory note (which the borrower signed at the time he/she signed the deed of trust). Since the promissory note is a contract, the statute of limitations in the state of Nevada for the lender to sue on a contract is six years after the debtor defaults on the promissory note. The lender now has six years to file a law suit against the borrower on the promissory note.
Some lenders are refusing to forgive the balance due on the promissory note and are requiring the borrower to sign a new promissory note before they will approve a short sale. The lender who still holds the promissory note can sell these promissory notes to collection companies. Collection companies have 6 years to sue on the contract/ promissory note. These collection companies can sue the borrower on the promissory note 2, 3, 4, 5 or 6 years down the road when the borrower has likely recovered and is in a position to pay.
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