Non-Recourse vs. Recourse Debt

A short sale involves a property whose value is generally less than the amount owed the lender.  Most sellers hope that the lender will forgive any remaining amounts owed after the completion of the short sale. 

                                     

However, up until December 20, 2007, the amounts forgiven by the lender were still

taxable income to the borrower and were, many times, an unknown and

unexpected tax consequence of a foreclosure or
short sale.      
                                     
                                                      

                                             
Recourse vs. Non-recourse Financing

In the State of Washington most borrowing by debtors is "recourse financing." What this means is that a lender may hold the debtor personally liable for the amount of the debt. "Non-recourse financing" means that the

lender may look only to the collateral offered to satisfy the debt.

However, in the State of Washington, most foreclosures are conducted in a fashion that results in the borrower being relieved (under Washington State foreclosure law) of any further obligation or liability for payment of the

debt by virtue of the lender using a non-judicial method to foreclose. In short, the debt becomes non-recourse by virtue of the foreclosure method employed by the lender.

                                 

Short Sales and Deficiencies

Most sellers seeking a short sale automatically assume that any amounts owed the debtor over and above the sale amount will somehow be

"forgiven."

Such is not the case in the State of Washington and many times this surprises borrowers and real estate professionals alike who do not anticipate its impact. In Washington, one must negotiate a waiver or forgiveness or

the lender (including second or third lenders) may be entitled to collect the deficiency amount after the short sale closes and for years into the future.

Don't leave yourself exposed to such harmful economic impacts.

It is highly recommended to consult with an attorney and hire a short sale expert!


                                        

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