Short Sale

If a lender allows a short sell of a property in foreclosure (worth $100,000 with a recourse loan balance of $95,000) for $55,000 will the seller of the home (owner in default):

  1. be saved from a foreclosure listing on his credit or be protected from future credit damage in regards to the property sold and

  2. will he or she be shielded from a deficiency judgment ($95,000 -$55,000 = $45,000) since the loan had recourse.

What would the answers to these two questions be if the loan was nonrecourse?


I’m not an expert on this stuff, but here’s my guess…

A short sale would not show up as a foreclosure on the seller’s credit either way. There may be some language about a short pay reflected as loan payment satisfied or something to that effect, I don’t know.

My understanding is the lender can go after a deficiency judment OR 1099 the seller for the debt relief. Rumor is the 1099 is most common. And no, with a non-recourse loan, I wouldn’t think a deficiency judgment would be doable, but a 1099 could be.

That said, please ask someone knowledgeable and report back. These are good questions. Thanks.