Simply put, a short sale is a sale where the mortgagee agrees to release or maybe even satisfy the mortgage lien for less than the amount owed.  However, neither necessarily  relieves the mortgagor from his or her obligation under the promissory note.

The deficiency is the difference between the amount of money realized from the short sale of the property and the total amount owed (which includes accrued interest, advanced costs, attorney’s fees, etc.) under the promissory note.    This is an unsecured obligation which can be discharged by bankruptcy.

Most mortgagees are going to require an appraisal to confirm that current market price is indeed less than what is owed on the mortgage.   Most will also want complete financial affidavits from the mortgagor to verify there are no other sources of income or assets available to pay the amount of indebtedness.  The amount of documentation will vary.   The best approach is to get as much together as possible and present it all at once instead of by piecemeal.

In negotiating a short sale, one should:

• Make sure you are dealing with proper authorized agent and get name, title and contact information.
• Stress one’s financial inability to pay and the likelihood of the mortgagee incurring further losses in pursuing the foreclosure such as the attorney’s fees and costs in pursuing the foreclosure suit, the costs of managing and marketing the property after the foreclosure sale and the deterioration in value.
• Get mortgagee to release underlying obligation or at a minimum not to pursue a deficiency.
• Reduce tax liability to the greatest extent possible
• Avoid a judgment being entered.
• Refrain from unnecessarily waiving any rights owner/mortgagor might have.
• Follow up all verbal conversations with written documentation.