Paying Off Your Mortgage: A Look At Short Sales And Ways To Avoid Or Handle A Short Sale Deficiency Judgment

The average mortgage in the summer of 2012 for Americans was just a little under $950 a month. This does not include the annual expenses of property taxes and insurances. It is no wonder that most Americans are having difficulties paying off their mortgage. If you are having problems paying your mortgage off, opting for a short sale may be the best decision. This article will take a further look at what short sales and short sale deficiency judgments are. 

Getting a Better Deal with Short Sales and Understanding What Deficiency Judgments Are

A short sale is an agreement made between both the homeowner and the mortgage lender. This is when you sell your home for less than the total debt balance that is still remaining on your mortgage, and the lender agrees to accept the sale proceeds to pay off a portion of the mortgage and to release any remaining lien on the property. A short sale is one of the easiest ways for homeowners to avoid foreclosure. 

The remaining balance on the lien after the sale proceeds have been used to pay off the majority of the mortgage is referred to as the "short." For example, if your property was worth $100,000, but you sold it for $80,000, you are short $20,000. In some states, the lenders can go after you for the deficient amount in the future even after the short sale has long been finalized. In which case, you will be held responsible for paying back the deficient amount. Keep in mind that deficiency judgments following short sales are prohibited in Arizona, California, Nevada and Oregon

Taking a Proactive Approach to Avoiding a Short Sale Deficiency Judgment

To prevent being served a short sale deficiency judgment at a later time, it is important that it include a waiver of the lender's right to seek a deficiency judgment within the short sale agreement. You do not want to handle or draft up the short sale agreement by yourself. Legal counsel will be appropriate in these situations. At times, the lenders may be unwilling to sign this waiver, and your attorney may need to negotiate terms and conditions with the lender.

To prevent the lender from having the right to request a short sale deficiency judgment in the future, the short sale agreement must explicitly state that the short sale transaction will fully satisfy the debt. Some agreements will further go into detail regarding the fact that the lenders will waive their rights to requesting a deficiency judgment at a later time. 

Handling a Short Sale Deficiency Judgment

If you were not diligent in hiring a short sale attorney at the time of the transaction, and you have just been served with a short sale deficiency judgment, your first step should be to contact an experienced lawyer that specializes in this field. The lawyer will represent you and give you advice as to what your next approach should be. Generally speaking, after a being served a short sale deficiency judgment, there are usually only two options left. You can either:

  • choose to ignore the judgment until you are actually being sued, which may be the best option if the amount you owe is far less than the cost of expected legal fees; or, 
  • attempt to negotiate a settlement offer with the lender.


Due to all of the things that can go wrong with a short sale transaction, you should never attempt this type of transaction alone. Always contact a professional lawyer and get legal counsel before taking any action. It is important that you protect yourself in order to avoid liability in the future.