Deficiency judgment/1099 - short sale vs auction

Hey all. I know that a deficiency judgment is possible against the homeowner in a short sale context, but what about if the property goes to auction? Can the banks still chase them for the rest after the auction?

And what about the 1099 consequences for the owner - any difference there?

(There’s been quite a lot of talk on the forum about both deficiency judgments and 1099s and the need to advise owners on the possible consequences of a short sale, but I suppose what I want to know is whether it would be any different if the property ends up being auctioned?)

Thanks for your advice!

I believe a bank could still pursue you for a deficiency if the property does not sell for what the bank is owed but here may be a difference in what they advertise as owed and what they are willing to accept as a “knock off bid” and that may be a factor but I’m not sure.

Judicial Foreclosure
The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. Generally, after the court declares a foreclosure, your home will be auctioned off to the highest bidder.

Using this type of foreclosure process, lenders may seek a deficiency judgment and under certain circumstances, the borrower may have up to one (1) year to redeem the property.

Non-Judicial Foreclosure
The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A “power of sale” clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to payoff the balance on a loan in the event of the their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee

Each state is different. Most states allows deficiency judgment.
Yes, to your question. Yes, Yes, the bank will send a form to the IRS.

The lender cannot pursue a deficiency judgment in a short sale situation. With a short sale the lender is willfully accepting a reduced payoff. They can, however, report the amount of debt forgiven as income to the mortgagor.

I sit on HUD -3 sub committees here in San Diego. I also have a personal friend of mine who is the president of the lost mitigation institute. A city employee was accepted to do a short sale. She had a deficiency judgment against, her. I based information that are experts in their field and real experiences. If I can not back up my findings, I will not post it. I am in the foreclosure business as well. When in doubt, get an expert 2nd opinion, or someone who does it for a living.