Negotiating Deficiency is Key when atempting a
short sale:
With a
short sale, the lender has three possible ways to handle the deficiency balance, which is the portion of the mortgage debt not covered by the sale of the home.
First, the lender can attempt to collect the deficiency balance from the seller after the property has closed.
Second, the lender may require the seller to sign an unsecured promissory note for the deficiency balance as a condition of agreeing to the
short sale. If the new note is for less than the balance of the original debt, the difference would be considered canceled, or forgiven, debt.
Third, the lender may agree to cancel the entire deficiency balance.
You must negotiate for the release of both the property lien and the underlying personal debt secured by the note. If you fail to do this, the lender may not forgive the personal debt and it will become a collection.
It is wise to consult with an Attorney or Real Estate Agent who is familiar with Short Sale negotiation and has significant experience working with lenders. Keep in mind that Attorney’s fees or Realtor fees come out of the lender’s net proceeds, therefore, you should not have to pay out of your own pocket for an Attorney or Realtor to assist you with the transaction.