How to Avoid Deficiency Judgments After a Short Sale

❔What Is a Deficiency Judgment?

In a short sale, your lender agrees to let you sell the home for less than what you owe. That difference — between what you owed and what the home sold for — is called the deficiency.

In some states, lenders can come after you for that deficiency after the sale closes. That’s what’s called a deficiency judgment — a court order saying you still owe the unpaid balance.

Example:

If you owe $300,000 on your mortgage and your short sale is approved for $250,000, the deficiency is $50,000. If the lender doesn’t waive that amount, they could legally pursue you for it.

✅ Most of the Time, It Is Waived

Here’s the good news: In the vast majority of short sales we handle, the lender explicitly waives the deficiency. It’s right there in the approval letter — something like:

"Lender agrees to release the borrower from any further obligation on the remaining balance."

🚨 Watch Out: Sometimes It’s Not Clear

Some approval letters are vague. They might say something like:

“This short sale is approved, and the lender reserves the right to pursue remaining balances.”

If it’s not clearly waived, you can and should go back to the lender and ask for clarification — in writing.

Pro tip:

Always review the approval letter with someone who knows what to look for — ideally your agent, attorney, or short sale negotiator.

✋ Sellers Don’t Have to Accept Bad Terms

Just because the bank approves the short sale doesn’t mean you’re locked in. You’re not obligated to accept an approval letter that doesn’t protect you.

If the terms include:

A vague deficiency clause

A demand for a promissory note

Cash contributions you can’t afford

…you have every right to say no. You can counter, renegotiate, or even walk away. No one can force you to sell if the deal doesn’t benefit you.

🗑️ Promissory Notes: What You Should Know

Sometimes a lender will approve the short sale but ask the seller to sign a promissory note for part of the deficiency.

Here’s the catch:

These are often unsecured — meaning they’re not tied to any property or assets, and there’s no collateral behind them. They’re basically an “IOU.”

That might sound scary, but in many cases, they’re non-recourse — meaning the lender can’t garnish your wages or seize assets if you don’t pay.

Still, don’t sign anything blindly. If you’re asked to sign a note, talk to someone (like us) who’s seen hundreds of these and can help you weigh your options.

🛡️ How We Help Sellers Protect Themselves

At Crisp Short Sales, we review every approval letter carefully to make sure the seller isn’t left exposed. We’ve seen thousands of these — we know how different banks word things, when to push back, and how to get that clean release language that makes sure your short sale is a true fresh start.

💭 Final Thought

A short sale can be the smartest way out of a tough financial spot — but only if you do it right. That means making sure the lender fully forgives the unpaid balance and that you’re not left holding the bag months or years down the road.

If you or a client are navigating a short sale, let’s make sure it closes clean, clear, and final.

📞 Call Yoni at 404‑300‑9526 or

📧 Email yoni.kutler@ygkutler.com — we’re happy to help.