For homeowners falling behind on mortgage payments and in need of debt consolidation, a short sale of the home at a price lower than what they still owe on it may seem like the only viable option.
However, before going through with a short sale, one should consider the potential consequences and take appropriate actions to prevent them from becoming a reality.
According to Frank Alexander, a member of the board of directors of the Consumer Credit Counseling Service of Greater Atlanta and a law professor at Emory University, homeowners who engage in short sales can often leave themselves open to a lawsuit by their mortgage company looking to recoup the remaining amount owed on the house.
"A borrower facing a foreclosure should assume that a post-foreclosure lawsuit is possible," said Alexander. "In addition, no homeowner should ever participate in a short sale without receiving a signed agreement clarifying that all outstanding debt has been forgiven. The same is true for all deed-in-lieu of foreclosure resolutions."
Homeowners can also leave themselves open for similar lawsuits if they simply decide to walk away from their mortgages and let the payments default. Alexander added that he felt homeowners should not risk leaving a home behind unless they are told they will not be on the hook for any of the remaining costs.