Short Sale Laws and Foreclosure Rules In Each State

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Short Sale Laws

Welcome to, the ultimate authority on the web for finding information about short sales and foreclosures in your state.  We have everything you need to educate yourself about the short sale and foreclosure process in your state.

Short sale laws and foreclosure rules vary from state to state across America. There are new short sale laws in California, short sale laws in Florida, short sale laws in Nevada and other states that have been updated because of the current foreclosure crisis to prevent fraud and protect homeowners from various schemes that could cause them to lose there home.

Short sales have increased in popularity during this time as they seem to have a less drastic effect on the homeowners credit than a foreclosure.  Because of this, Short sale laws have been instituted that require real estate agents, attorneys and third party negotiators to maintain a certain level of expertise and licensing.

Some states allow lenders to foreclose on a home through a non-judicial foreclosure.  In this process, the lender sends a Notice of Default and Election to Sell letter to the seller.  The bank has assigned a trustee through the Deed of Trust that was established when the seller took the loan out on the property.  After a certain number of days, the property is sold on the courthouse steps to the highest bidder.  If there is no bidder, or if no bid exceeds the minimum dollar amount set out by the trustee, then to property reverts back to the lender and becomes what is called a Bank Owned home or an REO (real estate owned).

Some states, like Maine, Illinois, Florida and others require the bank to foreclose through a judicial foreclosure. the lenders go to court in what is known as a judicial foreclosure proceeding where the court must issue a final judgment of foreclosure. The property is then sold as part of a publicly noticed sale. The court with jurisdiction over a foreclosure is known as the Circuit Court. In Illinois, for example, the Circuit Courts are broken down by county, and the Chancery Division handles foreclosures. A complaint is filed in Circuit Court along with what is known a lis pendens. A lis pendens is a recorded document that provides public notice that the property is being foreclosed upon.

Another important law to keep in mind around short sale laws and foreclosures is the ability for the lender to pursue what is called a deficiency judgement for the remaining balance.  For example, if the bank forecloses on a property and doesn’t not receive a bid high enough to cover the original balance, the lander may be able to pursue a judgement against the former owner for the remaining balance.  Some state, like Oregon, do not allow the lender to do this. The act of foreclosing is the only remedy the bank has in this case.

When it comes to short sales, it is up to the lender to decide if they will pursue the seller for the remaining balance.  It is important for the seller to know if the lender is waiving that right.  A waiver of the deficiency balance should be in writing on the short sale approval letter.  California has recently passed a law that requires all short sales in California to have a waiver of deficiency in them.  This means that all short sales done in the state of California allow the seller to owe nothing to the lenders upon completion.  There are also certain government short sale programs like the Home Affordable Foreclosure Alternative (HAFA), that require all lenders that participate in it to waive the deficiency balance.