When I sell my house by short sale, will I still be subject to liability in the form of a deficiency judgment?

Answer: It depends. Sorry about that; but it does.

First things first, from where would a deficiency judgment arise in a short sale scenario (that is, when the lender has accepted less than it is owed in exchange for a release and satisfaction of mortgage that encumbers the real property)? A deficiency judgment could arise from the enforcement of the Note. The Note, as you are aware, is the personal promise to repay to the lender the sums borrowed. It is, in essence, back up security for the lender should the sale of the real property collateralized in the Mortgage fail to net enough to satisfy that Mortgage. When such a deficiency exists, the lender has a few options:

  1. The lender may agree to cancel the debt.
  2. The lender may agree to cancel some portion of the debt and demand the repayment of the rest.
  3. The lender may demand repayment of 100% of the deficiency.

While there is no crystal ball for sellers or the agents listing their properties to determine which of the above options a lender will choose, understanding the options can be of tremendous value.

If you have a question about a deficiency judgment download our free eBook 12 Things You Need to Know To Survive a Short Sale or contact us.

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Winged Foot Tite, LLC is not associated with the government, and our [short sale orchestration] service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan.