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How To Negotiate & Waive a Short Sale Deficiency Balance

Hello! Lately, I’ve been receiving a HUGE influx of questions & concerns on what to do regarding lenders and their unwillingness to waive short sale defiencies, so I’d like to revisit this topic with a couple key pointers on how to negotiate, reduce & ultimately eliminate a deficiency after a short sale.

I also talk about this in my email reports, so sign up NOW by adding your name & email in the form located on the right side of this website.

Now one thing that I am not going to do is give you legal advice on this blog.  If you want to hire legal advice for more personalized consultation, first of all, do not hire an attorney for $300 an hour.  Use Pre Paid Legal, which gives you unlimited consultation with a top tier attorney in your area for a measly $16 a month.  I use this service myself.  With short sales, rarely will you need physical attorney representation.  Rather, you need consultation, and that comes a lot cheaper.

Plus, Pre Paid Legal attorneys WILL write letters & make phone calls for you, if it is necessary to do so. 

Follow this link to learn more about Pre Paid Legal

Before you even consider a short sale, first ask yourself, do you want to keep the property?  We’re not in the business of forcing people to do short sales if they’re desire is to keep their property.  Have you considered a loan modification? 

If you really want to keep your home, there are plenty of other options to consider.  Did you know that it is possible to file for BK, discharge a large 2nd and modify your first mortgage which would instantly “recreate” equity in your property while leaving you with a significantly lower payments AND a lower mortgage balance then you originally had on the property?  Ask a loan mod expert about this option

Now, in order to negotiate & waive a short sale deficiency, you must have the basic following:

1.  A professional negotiator

2.  A complete short sale package with an offer

3.  Updated financials

If you do not have these basic things, you’re going to run into small, administrative issues that’s going to keep you from talking about what’s most important in a short sale (ie. the deficiency).

Now let’s talk about a couple things you need to understand before attempting to negotiate & waive a short sale deficiency balance.

First, how many mortgages do you have?  If you have only one and you live in a non-judicial foreclosure state, you have the most leverage for negotiating your deficiency balance.  This is because if you allow the property to go into foreclosure, the property will sell for 60 cents on the dollar and the lender will lose all deficiency rights.  Thus, it is in the lender’s interest to simply accept the short sale as payment in full.  Alternatively, if you have a 2nd mortgage, you have less leverage,  since the 2nd lienholder can usually pursue you for the deficiency no matter what.

Now, let’s talk about a couple techniques that I’ve used to personally negotiate 100% waiver of deficiencies or a settlement for less than what is owed:

1.  Financial hardship.  If you are in true financial hardship, you must make this absolutely clear to the lender.  You must convince the lender that it is not worth pursuing you, since you have no assets, and that foreclosure means “little” to you if they are not willing to budge (this will surely scare the 1st, while it might not have so much effect on the 2nd)

2.  Threaten bankruptcy.  If you threaten bankruptcy, (esp. if you send a letter or a BK schedule), lenders will work with you.  In the event of bankruptcy, lenders are at the mercy of the bankruptcy trustee and how they decide to approve the terms of the BK.  If you are in financial hardship with much debt, you will probably be qualified to discharge that debt.  Threaten bankruptcy.  You can get Pre Paid Legal attorneys to write letters and make phones calls to your lender if you want to add serious firepower to your negotiations. 

3.  Have the buyer raise the purchase price.  This is why it is absolutely important that you do not try and haggle buyers for the highest priced offer when you intial do the short sale.  This will only harm you.  Most homeowners are under the impression that the higher the offer, the lesser likelihood that lenders will release the deficiency.  This is not true.  On the contrary, lenders will be more likely to release the deficiency if the purchase price is raised AFTER the lenders are intially given a much lower offer.   

My lender isn’t budging and is not waiving the “deficiency” language and/or is requiring me to sign a promissory note!

In the event that you are running into this issue, it is likely that your missing one of the above steps.  However, I understand that sometimes the lenders will simply not budge.

My opinion (not legal recommendation), is that you release the lien anyways and follow through with the short sale to pay off the 1st (in most cases, a short sale will allow you to at least get the 1st off of your back).  Any remaining debt with the 1st or 2nd, any promissory note or the “right” to pursue a deficiency is nothing more than unsecured debt (like a credit card) for the lender (which they hate), and if you default on that, then the lender is left with the choice of either suing you for the debt, to settle for less than owed or to simply write the debt  off and issue a 1099-c.  Releasing the debt as a tax write-off, by the way, is quite rewarding to the lender and in many cases, the lender will simply write off the debt. 

Once you corner your lender into this situation, it is in your best interest to repeat the above steps (show evidence of hardship, threaten bankruptcy).  Lenders, their creditors or their attorney firms will most likely be open to look at different options, especially if you threaten bankruptcy. 

If you have some cash or can borrow some cash, you can also do “debt settlement” with your lender (as well as with all of your other unsecured debt) and try to settle for 20%-40% of your debt. 

Can’t I just allow my property to go into foreclosure?  Don’t they lose their deficiency rights if I do this?

No.  If you live in a judicial foreclosure state, the lender can still pursue you for the deficiency.  If you live in a non-judicial foreclosure state, the non-foreclosing lender (usually the 2nd) can still pursue you for the deficiency.

OK, so what if I get the deficiency waived or the lender decides to release the debt as a “tax write off”?  Won’t I still owe taxes on the deficiency?

Yes, unless you are qualified for the Mortgage Forgivess Debt Relief Act of 2007.

Now with everything that I’ve mentioned, keep in mind that a professional short sale negotiator is an absolute necessity when dealing with a short sale.  There a billion other things that can go wrong in a short sale, so make sure you hire representation. 

One last concern I want to address:  “My credit is important to me!  How do I improve my credit after a short sale?”

I’m sure you know by now that a short sale will damage your credit, including the 30/60/90 day late payments that show up on your payment history, although a short sale is not as damaging as a foreclosure. 

Well there’s no need to worry.  We’ve recently partned with Lexington Law, an attorney firm that specializes in removing negative items from credit report, NOT based on accuracy (since most negative items are accurate), but on OTHER factors that are just as important. 

Follow this link and ask a Lexington Paralegal about removing short sales, late payments and even foreclosures from your credit report.

I hope that by now, I’ve provided you with enough resources & information necessary to close your short sale, walk away from your property and minimize the damage as much as humanly possible.  You may want to bookmark this blog post and keep it as reference for the future.

I truly wish you the best,


Written by SSB


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  • Kevin great info. We are in MI and the bank just sent back its offer with a $13K promissory note attached that we can’t obviously afford. We had a deal with another buyer a month before this one where the buyer stepped away and they had a $8K note attached. Are they playing games trying to see how much they can get? Should we bring this up when trying to get them to lower or erase the note? Our Realtor has been our negotiator should we hire someone else? This house has been on the market 12 months and went from $164K to $93K.

    • Nicole,
      Is this a counter offer or an approval letter? If it is a counter offer, then you would absolutely want to negotiate the 13k promissory note. If it is an approval letter, it is very rare that banks will change their verbiage after the letter has been issued.
      In regards to hiring a negotiator, you want to make sure that you find a professional negotiator who has done numerous short sale deals which will increase your chances of getting a better outcome in this transaction. If there is someone who is more qualified for the job, then it may be a viable option for you. You also have to consider the costs of hiring a negotiator. There are negotiators out there who will negotiate at no expense to you but rather the buyer. You must consider your options and weigh them out before you make any official decisions.
      Based on the little information that was submitted, it is difficult for us to thoroughly answer your questions. Your case depends on many variables such as the bank you are dealing with etc. Feel free to submit your information under the short sale tab if you’d like so our expert negotiators can answer your questions directly.

  • Pingback: Deficiency waiver vs judgment: Is my lender going to pursue me for the deficiency in a short sale? Can I get my deficiency released if I short sale my property? When is the right time to ask for a deficiency release? | The Seattle Short Sale Blog

  • Found your site almost at the end of our negotiations for a short sale in NC. Question: deficiency will be approx $250k; BofA says they will waive the deficiency balance if we bring $40k to he settlement table. What do you think of this?

    Thank! – Karen

    • Hi Karen, this is pretty normal for a bank to request a cash contribution in order to waive the deficiency. It is always best to try and get the deficiency waived if possible of course. If you can’t come up with 40k, you can counter with an amount that you can do. Try and build rapport with the negotiator as well as it is more likely they will work with you if there is a relationship established.
      Hope this helps

  • Im currently in foreclosure process on two investment properties located in SC with BoA. Both properties have purchase money seconds with same bank. They also have tax and hoa liens. The foreclosure papers i was served stated deficiency waived on the cover. I foreclosed on two properties in Georgia in 2010.
    I tried to sell properties previously without success. I just re-listed properties at “foreclosure prices” since their has not been a fair market sale since 07 in this complex. I received an offer on each place for short sale. My question is, am I opening up a can of worms just to help the bank sell the property as they have waived the def. for the foreclosure? Can bank change deficiency waved on processed foreclosure because a short sale is submitted? Or is this bargaining power for me to say the short sale is conditional to waived deficiency or we will proceed with fc. Is it still in my best interest to have two less fc’s on my credit and work out settling the second mortage as well? We just want things resolved but simply cannot afford to come to table with lump sum or be expected to sighn additional prom. notes that BoA seems to try with many people.
    Our main hardship is unemployment.
    Thank you for any advise!

    • Hello Tex,
      Unfortunately, without knowing the specifics of your circumstances, I cannot accurately help you in your situation. However, I do have some recommendations for you.
      On the foreclosure papers with the deficiency waiver verbiage, does it have both loan numbers on it? You NEED to make sure you have release on both liens because the 2nd may still be able to pursue you post-foreclosure. You need to consult with your attorney to see whether SC is a deficiency or anti-deficiency state If you are not able to get deficiency release on both liens for both of the properties, foreclosure may be the better option for you. Albeit you will have additional foreclosures on your credit report, since you already have two foreclosures, your credit is already affected and will take 5-7+ years to repair anyway.
      If you decide that you want to go with a short sale and try to release deficiency on both properties, I suggest you do your research on negotiators in your area. Check the stats and track record of the realtor/negotiator for the current short sale offers. Furthermore, read our article http://seattleshortsaleblog.com/2010/04/12/how-to-find-the-best-short-sale-agent-in-your-area/#more-310
      and make sure you find the right agent!
      Best of luck Tex

  • I’m currently stalled on a new FHA mortgage because my ex-husband sold short on our previous home. (I quit claimed off & he reaffirmed the 1st mortgage solely in his name.) Apparently the 2nd wouldn’t allow him to remove my name so he continued to make payments until the time of the sale. The 1st was paid in full with the contract price but the 2nd agreed to a $3k settlement. However, as part of the Lien Release they noted that the residual would have to be paid per current terms until fully satisfied.

    He got the letter at closing and to close the deal signed it. Now, it’s biting me because they never removed my name and it’s showing on credit as a mortgage.

    My question is – did I have a short sale? The underwriter seems to want to wash his hands of it because it requires work. I’m sure I have done more research at this point than he did before unofficially denying my FHA application.

    I’m reading HUD guidelines and anything and everything on the web and it says that if the 1st and 2nd were current at time of close that the 36-month wait period doesn’t apply (both were).

    What are your thoughts? (Btw, I’m at 27 months with a 700 credit score).


    • Hi Deanna,

      I cannot give you any advice as this is a legal matter.
      However, I HIGHLY recommend you contact Lexington Law at 1-866-348-8440. They are the leading credit repair company in America and they will give you free consultation from a professional. Whether you had a short sale or not, they will tell you what your options are at this point.
      If I can help in any other way or if you don’t mind updating me on your status, please contact me at kevinkim.email@gmail.com
      Good luck!


  • I declared bankruptcy 2 years ago due to a business closing but re-affirmed both my first and second mortgages because I cashed in my 401 k after the bk to help pay my bills…2 years later, I still do not have a career type job and am out of money…I have considered renting my place but the fair market rent value is just enough to cover my 1st and 2nd payments but not the 450.00 condo hoa dues…I do not have any means of paying the 450.00 or pay either lender if my renter misses or is late on his payment so i am considering the short sale to get rid of the property…..how hard is getting the second ( B of A ) to just write off the deficiency and issue me a 1099?…once they do that, doesn’t that take care of them being able to pursue the deficiency?….and for me, that seems like the best result for me because under the Mortgage relief act, it is my primary residence or i can claim insolvency which would get me out of the taxable income burden.

  • I went through a foreclosure sale (sheriff’s sale) and now I have 6 months to redeem my property according to the law in Michigan. I also have the rights to “short sale” it.
    The new total amount to redeem the property is 50% less than what I owe according to a letter by Trott & Trott, debt collector for Wells Fargo. If I redeem it, I face the fear of Wells Fargo coming back for the deficiency balance within the next 6 years. Is there a way to request/negotiate with Wells Fargo to waive any deficiency rights?
    Before the foreclosure, I had a short sale approved on the property, and in the approval letter from Wells Fargo it stated that they waive any and all rights to any escrow balance, insurance proceeds, refunds from prepaid expenses and waive any deficiency rights. However, these being different circumstances, how would I get it in writing once again that they are waiving the defiency rights before I decide and redeem the property.
    Thank you.

    • Hello Alex,

      I am unfamiliar with Michigan state laws on foreclosure. However, do you have a 2nd lienholder on the property? Michigan is an anti-deficiency state meaning the first position lienholder cannot pursue you for the remaining deficiency balance post foreclosure but the 2nd (or 3rd if existent) position can.

      Although this rarely incurs, if you decide to redeem the property and you are in default, the acceleration clause may be implemented where you may have to come up with the entire mortgage balance in order stop the foreclosure process. This probably will not happen but it is good to know what the worst case scenarios are.
      If you would like to short sell your property, the best way to get your deficiency waived like you had before is to find an expert negotiator who acquires their fees from the buyer to negotiate the remaining balance. I suggest looking for negotiators in your area as soon as possible as a short sale would be a viable option for you. Hope this helps

  • Hello,

    I have just been issued short sale approval through Bank of America. My home is in Arizona and it is my primary residence. One loan on the property.

    The short sale approval letter states that BofA will report this to the credit agencies as “Charge off with remaining balance outstanding”. My Realtor went back to the negotiator 3 times attempting to get the verbiage changed, however they tell us this can only happen with a $10,519 cash contribution. I do not have any money and no assets. I’ve gone through my entire savings. What are my options at this point? Is it too late to hire an attorney to try and negotiate how this is reported since the approval letter is already complete? Can I negotiate the cash contribution amount with the bank? How much do you think they would come down if this could be negotiated? The most I could possibly come up with would be a family loan for about 1/5 of what they are asking. Any advice?

    • You absolutely have the option to negotiate the verbiage and I highly recommend doing so. A promissory note may be a possibility at this point. If not, then I would certainly hire an attorney.

      Another recommendation is to find out the name of the negotiator and get the negotiators manager and manager’s manager for this verbiage change.

  • Mary Jane Jimenez on

    I know you won’t offer legal advice, but I’d like to get your opinion on this case, as much as you can possible give without getting into a legal advice. We completed a shortsale in January of 2009. We had a 1st and a 2nd mortgage, and our realtor negotiated for both, a month before closing our realtor received a letter via fax from the 2nd mortgage bank, she then emailed it to us. The letter said that they will release the lien on the property in acceptance of $2,000, but that they will then collect and that we are due the entire ammount of the original promisory note in the amount of $42,148.68. We never received the letter via certify mail, or they never made us signed the letter, our realtor and the title company representative advice that they never really come to you after the full amount, if anything we could settle later for a small amount of that debt. We were ok with it but we thougth that something more formal was going to be presented to us at closing, so we forgot about that offer from the 2nd mortgage, and since we were adv they’ll collect a small amount, we were ok with that. This letter was drafted in Dec 08, we had the Closing in Jan 16,2009, we didn’t see this letter on the closing documents, we didn’t sign a new note reflecting any new amount due to the 2nd mortgage, and on he HUD1 we saw a line that stated ” Payoff of second mortgage loan” then the amount of $2,000, we asked the title company representative, and once again confirmed, that they might come back after a small amount,, so since we didn’t see anything else asking us to sign for the full amount, only the acceptance of the $2k we assumed that then we didn’t owe anything.A few months after closing, around May, we then received a lawsuit from the 2nd mortgage,collecting the full amount. They are unwilling to settle for less as they stated that we agreed that they were going to collect for this amount, our argument is that we didn’t really agree, it was never mentioned at closing and we didn’t sign a new note. What you do think? We really think that they should work with us and settle for less, not the full amount, since obviously something was not done correctly at closing, since we thought all this time that we didn’t own anything or if we did it was a small amount.

  • I just recently read that a court in Washington State found that even after you have completed a short sale and been issued a 1099C the lender can still come back after the borrower for up to three years for the deficient amount. The justification was that individuals and businesses have up to three years to file amended tax returns. I also read that the WA Assoc of Realtors is trying to push legislation through the state that would state that if a lender issues a 1099C then that is a concrete declaration the lender will not pursue a deficiency later. Have you read or heard anything about either of these topics? I went through a short sale in 2009 and was surprised to read the lender could come back now to seek the deficiency, particularly since I was issued a 1099C. I was told at the time by an attorney that the 1099C, when or if issued, was the end of it.

  • I had a short sale in 2010, during the process the mentioned me possibly having to pay a balance to the PMI holder. I never signed anything to this effect agreeing to do so. Now I am receiving letters almost 2 years later requesting $7200.00 stating that I had an agreement. Do you have any suggestions on what I should do with this? I live in Georgia. Can they force me to pay this even though I never signed a promissory note?

  • My ex husband and I short saled our family home in Sept 2012. The 2nd lien holder refused to waive our dificiency balance but did not ask us to sign a promisorry note. The balance on our second (all Landscaping & Pool money borrowed) was $21,300… The 2nd received $3,000 at Short Sale to release the lien. Now the balance is $18,300. The 2nd offere my ex and I $7,500 each for a total of $15,000 to settle the debt… That is outrageous. We declined but offered $5,000 each for a total of $10,000. They refused. The 2nd ended up accepting my ex husbands counter offer of $6,500 to settle him. I offered them $6,000 and showed them divorce decree which states he got that house and all the financial obligations that went with it. The 2nd ended up declining my $6,000 offer and countering me with $10,163. What the heck is going on??? I hear all sorts of people settling for 20%, i am baffled

    • Hi Kelly,

      Do you have a third party negotiator on the transaction? If you don’t, I suggest to find a really good one immediately. Unless you get a deficiency waiver, I do not suggest you accepting. I have gotten many horror stories of lienholders pursuing post short sale and without the home to use as leverage in negotiations, putting up a fight is very difficult.


  • I will be fairly certain I’ve see this exact same form of declaration in other places, it ought to be gaining popularity with the public.

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