What are the consequences of defaulting on a promissory note versus a foreclosure?

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What are the consequences of defaulting on a promissory note versus a foreclosure?

The bank has accepted our short sale offer (first and second), but they want a promissory note for $27K. We are ages 66 and 69, still employed, but trying to retire and cannot afford to pay the promissory note. Should we let our condo go to foreclosure (state of FL) or will we still be sued for the deficiency amount? What are the consequences of each alternative: promissory note versus foreclosure? Our only assets are our cars and small savings from our pension.

Asked on June 19, 2011 under Real Estate Law, Florida

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

Florida allows what are known as "deficiency judgments." That is, if a home is foreclosed upon, after it's sold at a foreclosure sale or auction, if the proceeds of the sale (less certain administrative expenses or costs of auction) does not pay off the full remaining balance of the mortgage, the lender has the right to sue for whatever is left. These are not common, but they are something  the lender can pursue.

So under either foreclosure or a promissory note, if you end up owing the bank some amount you can't pay, you could be sued. It is probably somewhat more likely to be sued on a promissory note that you default on that on a deficiency judgment, so if the amount of the deficiency--basically, the extent to which you are underwater on the mortgage--is more or less the same as the amount of the promissory note, you are probably more likely to be sued if you execute the note and default than on a deficiency judgment from a foreclosure. That said, you *could* be sued on either.

You may wish to consult with a bankruptcy attorney; another option to explore is filing for bankruptcy, either before foreclosure or after. Good luck.


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