Underwater Home Sellers Cautioned To Keep Their Eyes Open For Fine Print In Lenders' Approval Packages When Seeking Short Sales

In Central Florida, a recent story in The Tampa Tribune serves as a cautionary admonition to underwater homeowners looking to go the short sale route in an attempt to unload their homes (and their related mortgage obligation(s)):

• Lenders are increasingly adding language to the [short sale] approval package, reserving the right to pursue the deficiency later - that is, the difference between what you owed on the house and what it sold for. Some homeowners, so anxious to get out of a pending foreclosure, skip right over that part of the letter. Some understand but opt to take their chances, betting they won't hear from the lender again. For some lucky buyers, this has been the case - so far. They've sold their home as a short sale, moved on, and haven't had any problems. But other lenders require the seller to agree upfront to pay back a set amount.

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• Lenders don't always go after short sale homeowners. But in Florida, lenders can wait up to five years to file for a court judgment to make the borrower pay. After the judgment is granted, the lender has 20 years to collect the cash. This is particularly frightening because lenders could wait until the debtor is back on their feet to act. The homeowner could recover financially only to discover years later that they owe the bank tens of thousands of dollars.(1)

For more, see Read the fine print in a short sale.

(1) If the lender intentionally drags its feet in bringing action with the view of waiting for the debtor to get back on his/her feet before it attempts to recover its debt, the "foot-dragging" lender may be found to have "slept on its rights" and, consequently, leave itself vulnerable to a laches defense. See:

Winter v. Allstate Mortg. Corp., 303 So. 2d 399 (Fla. Ct. App, 3rd Dist. 1974):

• Of course, a party ordinarily has twenty years in which to enforce a judgment in Florida. However, when undue delays are exercised without sufficient reason, it has been held that equitable defenes may be raised which may cut off the right to satisfy a judgment. Orr v. Allen-Hanford, Inc., Fla.1946, 158 Fla. 34, 27 So.2d 823; Blackburn v. Venice Inlet Co., Fla.1949, 38 So.2d 43.

Blackburn v. Venice Inlet Co., Fla.1949, 38 So.2d 43:

• In the case of Orr v. Allen-Hanford, Inc., 158 Fla. 34, 27 So.2d 823, we held that a creditor may satisfy his judgment within twenty years, but when undue delays are exercised without sufficient reasons shown therefor, equitable defenses become available that may cut off the right to satisfy the judgment.