Deficiency judgement

The amount of money owed to a bank after a short sale can attempt to be recovered through a suit known as a deficiency judgment. Equally important to note, if the bank sells the property for less than what was owed or the foreclosure auction nets them less than what was owed they can also file a deficiency judgment against the former owner.

In terms of a deficiency judgment after foreclosure or short sale, the bank may be able to go after other assets, but any retirement funds the former homeowners have are generally protected. Especially if they invest their retirement savings in an IRA or through work in a 401(k), 403(b), then the bank can not try to seize any of these savings. However, if their retirement funds are "invested" in a second home or a other assets, then the bank may be able to to go after those assets. That is because specifically designated retirement accounts are protected from creditors, while assets simply invested in for the purpose of saving for retirement without the special designation are not protected.

In most cases, the lender rarely pursues the deficiency judgment. They may file suit so it appears on the former homeowners credit report, but little else after that. Mortgage companies know that people in foreclosure do not have the money to pay the monthly mortgage payment, let alone pay the entire foreclosure judgment or a deficiency judgment after foreclosure. Thus, it is just not worth the lenders' time to keep suing homeowners with no expectation of ever collecting anything from the lawsuits.

A CDPE can negotiate with the bank to forgive the balance owed as the result of a short sale. Yet another reason to hire a competent Realtor with the CDPE designation.