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Language for waiver of deficiency balance in short sale

Chicago, IL |

I have approval for a short sale that must close by Sept 20, 3013. Primary lender has included this language: XXXXXX agrees to release its security interests in the above collateral . . . Any deficiency balance remaining on the loan secured by the property referenced above will be waived.

There is a 2nd lender involved. Language from 2nd lender states: we agree to accept $6,000 from closing and an additional $9,000 from (seller) to settle in full.

My question is, do these statements constitute waiver of deficiency from both lenders? I am unsure and do not want them coming back to collect from me after the closing. I am unemployed and have borrowed the additional 9K from a relative in order to sell the property as a short sale.

The Short Sale RE's attorney has stated that 'settlement in full' is the same thing as the waiver. "There is no difference. A settlement in full means they cannot collect from you on this loan after receiving the payment they specified. It will not come back to haunt you."

Attorney Answers 3


  1. Best answer

    I cannot respond fully without looking at the documents, but here are a couple of things to look for.

    Does the lender sign the document that claims to waive/release the amounts due?

    Will the Lender return the promissory note marked paid as agreed, or paid in full?

    Also, if there is a waiver of deficiency, you should know that this is a taxable transfer. You can be taxed for the value of the waived deficiency. If Lender waives 20k, you can get a 1099 for 20k from them (unless you filed bankruptcy) that you have to include in your tax return (there are some exceptions, but you need to be sure you qualify for them). For this reasons, it is best if the waiver documents indicate that the value of the property equaled or exceeded the loan amount.

    Best get an attorney involved.

    My answers are general in nature based upon very short, and often incomplete questions. Please do not rely upon my answers. If you need a legal opinion, you need to hire a lawyer who will take the time to fully understand your problem and then take the time to research the issues.


  2. This question should be posed to your real estate attorney as he/she will have the complete letters in front of them.

    Often 2nd liens do not specifically state that they are waiving the deficiency and therefore they could technically come after you in the future. However, they are also not going to change the terms of the letter and therefore you have to weigh the risk of potentially getting sued down the road for the deficiency against getting foreclosed upon. Additionally, if the first lender obtained personal service on you in the foreclosure action and you do not accept the short sale then they can seek a deficiency judgment against you for the difference between the sale amount and the amount you owe.

    Again, you need to speak with your real estate attorney to fully understand your risks and weigh your options.

    Though we strive to provide accurate legal information in our answers on AVVO, our answer should not be construed as legal advice and it does not create an attorney-client relationship. Our firm only forms attorney-client relationships by written agreement signed by both our firm and the client. If you choose to proceed, we would be happy to set up a consultation with you to become apprised of all the facts and circumstances of your case and determine if we should enter into an attorney - client relationship. Please nite that legal matters are often time sensitive and failing to meet deadlines can result in adverse consequences.


  3. You really need to hire a real estate attorney to review the documents and advise you. A mess-up here can cost you many thousands of dollars (or a bankruptcy filing) and attorneys charge very reasonable fees for this type of matter.

    Though we strive to provide accurate legal information in our answers on AVVO, our answer should not be construed as legal advice and it does not create an attorney-client relationship. Our firm only forms attorney-client relationships by written agreement signed by both our firm and the client. Please seek an in-person consultation with an attorney immediately as almost all legal matters are time sensitive and failing to meet deadlines can result in adverse consequences.

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