Deficiency Judgment with a Successful Short Sale vs. Foreclosure

Deficiency Judgment is defined as the amount for which the borrow is personally liable on a note and mortgage if the foreclosure sale does not bring enough to cover the debt. The judgment is for the total amount and not for the deficiency, the recovery from the foreclosure sale being deducted from this amount.

Deficiency Judgment
Foreclosure-In 100% of foreclosures (except in those states where there is no deficiency) the bank has the right to pursue a deficiency judgment.
Successful Short Sale-In some successful short sales it is possible to convince the lender to give up the right to pursue a deficiency judgment against the homeowner.

Deficiency Judgment (amount)
Foreclosure-In a foreclosure the home will have to go through a REO process if it does not sell at auction. In most cases this will result in a lower sales price and longer time to sale in a declining market. This will result in a higher possible deficiency judgment.
Successful Short Sale-In a properly managed short sale the home is sold at a price that should be close to market value and in almost all cases will be better than a REO sale resulting in a lower deficiency.

What's in the Foreclosure Prevention Plan?

The Obama administration released (yesterday) its long-awaited plan to stem foreclosures. It's organized into three categories:

1. Help for homeowners making their payments but at risk of default and foreclosure. Homeowners with a Fannie Mae or Freddie Mac loan would be eligible to refinance as long as their mortgage doesn't exceed 105 percent of the home's current market value. Currently owners need to have at least 20 percent equity. Potential impact: 4-5 million households.

2. Help for homeowners already in default and in need of loan modification. For lenders that voluntarily agree to lower a borrower's payment so that it makes up no more than 38 percent of the borrower's income, the government would share the cost of lowering the mortgage burden to 31 percent of income. Incentives to lenders to participate include a $1,000 payment. Borrowers can receive up to $1,000 as an incentive to stay current on their new mortgage. Still in the works is a proposed provision that would allow bankruptcy judges to require loan modification (known as a cramdown) as part of a household's restructuring. That provision requires legislation by Congress. Estimated potential impact: 3-4 million households.

3. Doubled resources to Fannie Mae and Freddie Mac. To encourage investors to buy the secondary market companies' mortgage-backed securities, the government explicitly backstops them to up to $400 billion, twice the current amount.

The plan does not provide help to investors or to homeowners who are in trouble with a second home, nor does it apply to homeowners whose mortgage is part of a private-label mortgage security that is not backed by Fannie Mae or Freddie Mac.

"The administration's proposed plan, combined with provisions like the $8,000 first-time home buyer tax credit in the just-enacted American Recovery and Reinvestment Act, will help minimize foreclosures, shrink housing inventory, stabilize home values, and move the country closer to an economic recovery," says NAR President Charles McMillan.

Attend our Avoid Foreclosure Seminar, March 11th 7pm at the Tijeras Creek Golf Club in Rancho Santa Margarita.

Mortgage Counseling Department

Thank you to all who attended our Avoid Foreclosure Seminar. Due to its success we plan on having another seminar on Wednesday, March 11th at 7pm. Location will be Rancho Santa Margarita. Please stay tuned for details. There are a lot of people in Orange County who have purchased a home or refinanced in the past few years who may now be in trouble in their loan. The Canaday Group has recently opened a Mortgage Counseling and Short Sale department to accommodate all troubled homeowners. Our Mortgage counselor is a realtor who has been helping homeowners for the past 14 years. He is an expert in Mortgage Counseling and if needed, Short Sales. We are ready NOW to help you or any friends and family of yours.

Green Appeal

Green is the buzz word. Many homeowners may be looking for ways to appeal to this home buying group. Some minor fixes may help homeowners sell closer to their asking price. These tips will help any homeowner:
-Replace regular LIGHTBULBS with compact fluorescent bulbs. They use only 1/5th the energy of regular bulbs and last about 12 times longer.
-Purchase an electronic THERMOSTAT that can be programmed to change the temperature when you are asleep or away from home.
-Energy efficient DOORS & WINDOWS help save money and look better!
-Energy efficient APPLIANCES are key. Many utility companies offer discounts on the monthly bill by purchasing a new refrigerator or washer/dryer.
-Replace the linoleum floor in the kitchen with bamboo or cork, made from a renewable source
-Switch out your shower heads and faucets to low flow fixtures

Where does your home stand on the green spectrum?