After all these months of approving short sales, some lenders are now referring borrower accounts to collection departments for collection of unpaid amount due on the loans.
This is coming as a complete surprise to some borrowers. Confronted with papers to sign for a short sale, not all borrowers necessarily fully understood or read all of the “fine print” in such documents. In approving short sales, some lenders have issued letters that approved short sales but reserved to the lender the ability to pursue the borrower for any deficiency.
What this means is that some borrowers have completed their short sale, and then several months after the short sale they’ve received a letter from a debt collector that says the borrower owes a hundred thousand dollars or more to the lender on the unpaid home loan.
These collection letters may be getting sent to borrowers who have no obligation to pay the lender anything further on the loan.
This is a difficult situation for borrowers who sold their home through a short sale and thought that they were done with the process. If the lender, or the lender’s debt collector, sends a letter asking for payment on the unpaid amount of the loan, then the borrower might think that the borrower is liable to the lender for that amount. If the borrower negotiates directly with the lender, then the borrower might end up believing that he or she has personal liability when there is none.
The lender’s letter might be accurate. There might be an unpaid balance due on the loan. And the lender might be asking for it to be paid. But under California law, some loans carry no personal liability. On such loans, the lender must look solely to the property for repayment. Lenders who lend money in California do so under the framework of existing lender laws. This means that lenders who lend money in California either know, or should know, that for non-recourse loans the borrower will in most cases never be personally liable, and the lender will have to look solely to the property for repayment.
Lending and foreclosure laws are complex. Unpaid loan balances following a short sale or foreclosure can be hundreds of thousands of dollars. Advance planning prior to short sale or foreclosure can make an enormous difference on the outcome of a foreclosure or short sale. Borrowers are prudent if they seek competent legal counsel before they conduct either a short sale or before they allow their property to be sold in foreclosure. But if a short sale or foreclosure occurred without advance planning, then borrowers are still wise to seek competent legal counsel if the bank or a debt collector contacts them for payment following the sale or foreclosure.