Although the housing market continues to gradually improve, many Birmingham residents still owe more than their homes are worth. The lack of equity becomes a serious financial problem in cases where homeowners are unable to maintain their monthly mortgage payments. In this situation, homeowners often seek to get out from under their mortgage through a short sale.
A short sale involves the sale of a home for less than what is owed on the mortgage. Alabama homeowners need to be aware, however, that many mortgage companies continue to hold homeowners legally responsible for the remaining balance owed on the account following the short sale. Unless an agreement is reached with the lender, the mortgage companies or banks have the ability to file a lawsuit against homeowners to collect on the deficiency balance. Once a judgment has been entered, the lender can employ several different techniques to collect on the debt. Collection techniques may include wage garnishment, freezing bank accounts and recording a lien against other property. An individual bankruptcy filing can provide a means to protect homeowners in this situation, however.
A bankruptcy filing will protect Alabama residents from creditors while a bankruptcy case is pending. At the end of the case, a discharge will get rid of individuals' legal obligations on any deficiency balance arising from a short sale or foreclosure sale. A bankruptcy discharge will also help individuals eliminate credit card debt, medical expenses and personal loans. If Alabama residents are facing financial challenges, a bankruptcy attorney will be able to assist them in securing a fresh start.
Source: Daily Herald, "Lenders sometimes seek deficiencies after short sale," Tom Resnick, Jan. 13, 2013