Accepted Answer

Good afternoon XXXXXXXXX and welcome to Just Answer!

If both lenders agree to a short sale then they cannot come back after to you try and recoup the difference from what the home sells for and how much you owe. A short sale is an agreement where the lender, or in your case lenders, agree to accept a payoff which is not the entire amount owed as payment in full. This clears you from any further obligations with the mortgages. However, getting the second mortgage company to agree to a short sale is normally the difficult part. Many second lenders will try to convert the second mortgage balance owed after the sale into an unsecured loan in order to continue collecting on the amount still owed. However, if the second mortgage lender does indeed agree to a short sale along with the first, as long as the amount agreed upon in the short sale application is paid to both lenders, you will not owe anything further. If there is still a difference in the end, and the lenders either reject your short sale offer or will not lower the amount owed by enough to sell the home, then you will simply be unable to sell the home. The home must have a clear title and be free of your mortgages prior to someone else buying the home from you. Otherwise, you can not sell a home to someone with outstanding mortgage debt on the home still (unless the 2nd mortgage lender agrees to convert the 2nd mortgage balance into an unsecured loan).

The only way you could possibly have a deficiency judgment is if you allow the home to be foreclosed upon and are not able to short sale the home. There is no guarantee, whether you hire an attorney or not as to whether you will be assessed a deficiency judgment or not. This is completely up to the lender. Many times a bankruptcy will help you to avoid a deficiency judgment. In the event of a short sale you would most likely end up receiving a 1099 for the difference of what was owed on the mortgages and the short sale amount. You would then be responsible for paying taxes on this difference. This scenario could exist whether a short sale is permitted or your home is foreclosed upon. However, there is a way around this. You would either need to show you were insolvent at the time of the foreclosure or short sale by completing form 982, you would need to qualify for the mortgage debt relief act (see more information here: http://www.irs.gov/individuals/article/0,,id=179414,00.html ), or filing for bankruptcy (which would demonstrate insolvency). Therefore, if the lenders agree to a short sale then you would not be responsible for the balance(s) owed and the short sale amount. However, you could have tax consequences on this difference but if the home is your primary residence there is a good chance you may not have those either if you qualify for the mortgage debt relief act. Please let me know if I can be of any further assistance. Thank you for using Just Answer and please remember to leave feedback after you click the Green Accept button. Have a great week and best of luck to you with everything.

Expert:	Dave Z
Pos. Feedback:	100.0 %
Accepts:	375
Answered:	10/29/2009

Mortgage Co. Operations Manager

Operations manager for a mortgage company, Member of OAMB & NAMB, 10+ yrs experience in mtg industry