Deficiency judgements in CT: Will you be held responsible for the shortfall in a short sale?

Deficiency judgements in CT: Will you be held responsible for the shortfall in a short sale?

Connecticut is a deficiency state. This means the lender that suffers a shortage in a foreclosure or a short sale has the right to pursue a deficiency judgement from the borrower.

How does this affect you as the homeowner?

In a foreclosure the lender can handle their shortfall as they wish. They can and sometimes do sue the homeowner for the loss they have suffered. You will have no control over this in a foreclosure.

HOWEVER - If you are involved in a short sale, you (or your agent negotiating the short sale) will have the opportunity to negotiate how the loan is settled. The terms of your short sale will be spelled out in your approval letter which will not be attained until your short sale is approved. When the approval is reached, if the terms are not to your approval, you will have the ability to renegotiate these terms. As your short sale agent I always seek to have the short sale approved at terms most beneficial to you - which would be to settle the account in full. Is this ALWAYS possible? No. There are some situations in which the lender(s) will not waive their right to pursue a deficiency and then it will be your decision whether to go through with the short sale or not.

If the lender will not waive the deficiency, the lender will have to sue you to get this judgement so that they can collect. Can they do that? They can...however it costs the lender money to pursue a deficiency judgement. With full financial disclosure of the borrower in a short sale, the lender can see your assets and income and determine whether it is worth their time to pursue you. A lender is far less likely to pursue you for a deficiency if they do not believe you have anything worth going after.

In a perfect world all short sale approvals are full settlements of the account and frequently end up being just that. However some short sales are not full settlements and some lenders will in fact retain their right to pursue you for the deficiency after the fact, and may, if they belive it is in their best interest.

A short sale is not always a perfect solution, but it is almost always the most beneficial one. A short sale negotiated by an experienced agent is your best chance of settling the debt at your terms, preventing a foreclosure and minimizing your damages.

Considering a CT short sale?