My Mortgage Company Left Me Liable for a Deficiency on My Short Sale. – Karen

“Dear Steve,

I short sold my home and lender left me liable for deficiency, I did not learn this until after the fact. Lender says it may or may not pursue. My credit outside of my home situation is (was) perfect. I expect my previous excellent credit history and the fact I still have a job make me a candidate to review and pursue in the future

I have heard creditors look for certain indicators before they pursue. I want to know how I can keep a low profile. Should I not pay off credit and car loans early? Should I not keep cash in personal accounts? Should I avoid buying another home or financing anything until the time for them to collect expires?


Dear Karen,

You can try to run and hide from this deficiency all you want but no formula will protect you. There is also nothing that protects you from them selling the debt to a new company that can go after you. Bad debt buyers exist and buy debt every single day. It’s big business.

The other issue here is that the lender will be required to issue a 1099-C notice of forgiven debt to the IRS and you may be liable for income on that forgiven amount.

A short sale has big ‘gotchas’ and the true benefit of the short sale is to allow you to transfer the property, but that does nothing to eliminate your obligation for the full balance due on the loan at the time of the sale.

Through 2012 the Mortgage Forgiveness Debt Relief Act may eliminate your tax liability. You should discuss this with your tax preparer to clearly understand how this might impact you.

If you are sued for the deficiency due then you can always turn to bankruptcy to protect you.


You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

Damon Day - Pro Debt Coach

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