While short sales are an alternative to foreclosure when a home owner is facing hard financial times, a short sale can have some unforeseen long term effects especially if the homeowner had a second mortgage or line of credit attached to the home. It seems many lenders are selling these unpaid depts to collection agencies which may not surface for years after a short sale. The same holds true for foreclosures.
People who lost their homes through foreclosure or short sales years ago because of financial hardship are just now realizing they still owe lots of money. They may have even begun to get some financial structure back into their lives and now another hit to their credit.
Many of the dept collectors are pursuing these depts through legal means. The collectors have years to make claims and if successful in the courts they can even garnish wages or force repayment plans. In some cases the only resolve is to file bankruptcy or enter into dept negotiation.
My question is, why are consumers being protected from these lenders? While they created the unstable financial environment we are in now, they continue to be profitable. The banks were re-selling packaged loans to investors all the while they knew they were misleading the investors and the home buyers into thinking the loans were high quality with little chance of default. Unwise business practices were then rewarded by the government by giving large banks “tarp funds” which was nothing but a handout and then because of public outcry an “interest free loan” payable, whenever!