I learned a couple of interesting tidbits in a recent meeting with bankers at a local credit union. While credit unions can offer members lower rates and friendly service, there may be some unpleasant strings attached if you are in a position to need a short sale, or if you find yourself facing a foreclosure.

Since the credit union lends members' money, bankers are much more likely to file AND renew deficiency judgments against borrowers who default. That means if you sell your home short and there is a $20K difference, you would be on the hook to make up (pay off) the balance that is short. This judgment follows you, not the property, and it can be extended indefinitely....until the person who defaulted once upon a time decides it's time to buy a home, etc. They usually give up and pay off the balance, but their credit could be trashed in the meantime.

I was told that this particular (and very large) CU has NEVER done a short sale. Instead, they offer home owners a signature loan to pay off the balance over time. Most big mortgage companies are not this diligent in following up with collecting their balances due.

The really scary thing to me was in regard to a foreclosure. If the borrower didn't  accept the signature loan and the property went into default, it would be promptly foreclosed. This means the credit union has full and total control over the listing and sales prices. Once the sale closes, the borrower who defaulted would then have a deficiency judgment filed for the difference. Yikes! That could be HUGE!

Make sure you understand about deficiency judgments when you consider a short sale or foreclosure as a solution.