To avoid a deficiency judgement, is short sale or foreclosure better for land?

Bought land in AZ for $500K; Current Mtg is $350K; Property Value is $100K. Should I try to sell the land in a short sale or just let the bank foreclose. I want to avoid a deficiency judgement. The mortgage is current but I am out of financial resources to continue to pay. I’ve tried to talk to bank. They won’t talk to me as I am current on my payments.

Asked on August 31, 2011 Arizona

Answers:

FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

Whether or not a foreclosure or a short sale is best for your situation depends upon whether or not the loan for the property you own is for your personal residence and is purchase money. A purchase money loan is the original loan in existence when a person buys a home for his or he personal residence.

Many states have laws precluding deficiency judgments where the loan is purchase money and the security is lost in a foreclosure. California recently had legislation take effect in July 2011 stating that in any short sale situation, if the lender receives any money from the sale, that lender cannot go after the property owner for a deficiency.

In your situation you should consult with a real estate attorney to see if your loan is purchase money and if so, does your state have anti-deficiency legislation and short sale legislation like California's precluding a deficiency judgment against the homeowner.

Good question.

 


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