Skip to main content

What is the likelihood that a lender will pursue the deficincy in a short sale when there is only one primary mortgage ?

Seattle, WA |

We have received a Short Sale Approval letter from Bank of America. It states that they may pursue a deficiency judgment for the difference in the payment, unless agreed otherwise or prohibited by law. B of A is not willing to remove this languange from the accepting letter. My Real Estate agent said there is a law in WA that doesn't allow this. Is this true?

Attorney Answers 2


My experience negotiating short sales with BofA in two states has been that they do not pursue a deficiency. They issue a 1099 at the end of the year. My assumption is that they cannot both write off the debt - and tell the IRS that they have done so by issuing the 1099 - AND try to collect it. So despite the language in the Short Sale Approval, there is a good chance you will not be pursued.

If the short sale is on your personal residence, the forgiveness of debt does not create a tax liability. If it is on investment property, you will need to document that you were insolvent at the time of the forgiveness, so it will be important to keep accurate records.

This answer does not constitute legal advice and does not and is not intended to create an attorney-client relationship. The law may vary depending on the state in which you reside. It is intended only to give some direction in which to seek assistance.

Mark as helpful

1 found this helpful


The trust deed statute in Washington has an election of remedies provision under which a deficiency judgment is not available following a non-judicial foreclosure, but where a deficiency judgment is available if the deed is foreclosed judicially (through a lawsuit). Short sales and deeds in lieu of foreclosure are technically settlements, so unless the agreement between the borrower and the lender specifically provides that the deed is being accepted by the bank in lieu of pursuit of a non-judicial foreclosure, the bank will argue that the language it proposed in the short sale documents reserves its rights for a deficiency judgment. However, with both deeds in lieu and short sales, we are seeing banks negotiate an agreed deficiency in the form of a promissorty note, usually at a discount from the actual anticipated shortfall.

Mark as helpful

1 lawyer agrees

Real estate topics

Recommended articles about Real estate

What others are asking

Can't find what you're looking for?

Post a free question on our public forum.

Ask a Question

- or -

Search for lawyers by reviews and ratings.

Find a Lawyer

Browse all legal topics