Can my two lenders come after me for a deficiency balance?

UPDATED: Jun 12, 2009

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Can my two lenders come after me for a deficiency balance?

I have a home in Oregon. I am going to submit a short sale to my two lenders (first & second) this is my primary residence. In either situation, could one or both lenders come after me for a deficiency balance or 1099 me on my taxes?

Asked on June 12, 2009 under Real Estate Law, Oregon


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 13 years ago | Contributor

Unless the lenders agree in writing to accept a short sale as full satisfaction of the debt, they can indeed come after you for the unpaid balance. Indeed, short sales are normally only done when you can get the lenders to agree to accept less than the full amount--otherwise, you're still on the hook. Generally, as long as the short sale is reasonable given the current market conditions, home values, amount of principal outstanding, etc., lenders will agree--better to be paid most without a fight, then encourage you to NOT make the sale and so not pay them anything. But be sure you get their written agreement up front to bind them. Given the stakes, you should get an attorney, one experienced in this field, to negotiate for you and either draft or (if the lenders create it) review the agreement. Make sure you get agreement from both lenders. And come armed to the negotiating table with comparable sales and your own financials, so you can prove why they should take the deal.

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