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Short Sale Second Home

I am divorcing, and I cannot afford my mortgage. What are my options?

I've just divorced my wife age 43, she makes $98000.00 annually + bonus. We sold our main home to her company and the $ is in escrow. My health is not good, and my salary has been cut. We own a lake home valued at 50,000 that needs lots of improvements, with her name only on the mortgage. She has relocated to South Carolina with her company and doesn't want the house as I don't. I can't afford the improvements, and my attorney is saying I'm responsible for half the mortgage. I want her to let it go into foreclosure, because I can't even afford half the payment. Her credit score is low as is mine. I just want to survive this, and try to go on with my life. What should I do at this point. I'll probably move in with my 84 year old mother just to live to retirement, and no my retirement doesn't look good. Please advise what I should do with this property, I don't think it will sell or get enough even at auction which means I could end up paying 20,000 or 30,000 to pay the mortgage off.

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Bill's Answer
(6 Votes) | Find Learn Save

You have an alternative to foreclosure in a process called short sale.

Short Sale at a Glance

A short sale is where a mortgagee (most likely a bank) agrees to the sale of a property for less than the balance of the loan. The new owner is not liable for what is known as the "deficiency balance."

A deficiency balance is the difference between the total unpaid balance of a mortgage (includes principal and all unpaid interest, penalties and legal or other fees) and the amount that the lender is able to recoup from the short sale (the sale price of the home, net real estate agent fees, unpaid property taxes, maintenance and other expenses).

In some instances, the mortgagee will write a contract whereby the former owner agrees to pay the deficiency balance. In other instances, the mortgagee will agree to forgive the deficiency. One reader reported the mortgagee agreed to forgive the deficiency if the reader's financial situation remained the same. However, if the reader came into a windfall (winning the lottery, for example) the debt would be owed. A time limit was placed on this condition.

As you can see, making a broad statement about a former owner's liability in a short sale is difficult given the inconsistent behavior of mortgagees.

A new wrinkle in short sales that may affect you is the Home Affordable Foreclosure Alternatives (HAFA) program. If a mortgagee participates in this federal program, it may not collect a deficiency balance from former owners.

Short Sale Liability

If the mortgagee decides to pursue the former owner for the deficiency balance legally, it will file a lawsuit in the state where the former owner resides. If the court agrees with the mortgagee, it will issue an order called a deficiency judgment, which allows the judgment-creditor (the mortgagee) to collect the debt.

See the resource collections advice for details on liens, wage garnishments, and levies. This resource will answer your questions about what the creditor can do to collect on the potential deficiency balance.

A deficiency judgment will appear on a credit report for seven years.


Talk to the lender on your second home before committing to the short sale to determine whether it is participating in HAFA. If not, ask if it will pursue the deficiency balance through a deficiency judgment.

If the mortgagee agrees not to pursue it, get it in writing. If it will pursue the balance, negotiate it away from this option. The mortgagee is motivated to get this situation settled, so as a result you have some (though not a lot of) leverage at this point.

If they insist that they will pursue the balance, you should contact Hope Now and review your situation with its counselors.

I hope this information helps you Find. Learn & Save.



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  • DC
    May, 2010
    There are a variety of options available for those who are behind or falling behind on their mortgage payments. Determining what is realistic for your situation is your first step. You may qualify for one of the options available and still keep your home.
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