Read more: http://www.thefiscaltimes.com/Articles/2012/01/17/Foreclosure-Squatters-Goad-Lenders-and-Stand-Pat.aspx#page1#ixzz1me6vJJ4W
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What is a deficiency judgment: A deficiency judgment is simply the difference between what the lender is owed and what they are paid back. When a lender is not paid back in full via a short sale, they can go to court and get a court order directing the borrower to pay them back the difference. The lender can then take that judgment and attach it to the borrower’s other properties, if they have any, or garnish the wages of the borrower.
So are we safe from deficiency judgments in Washington State? No.
In Washington, the lender gives up the right to a deficiency judgment if they sell the property or take it back in the non-judicial trustee sale process. However, because a negotiated short sale closes in lieu of a trustee sale, the lender preserves their right to get a deficiency judgment.
You can basically tell the lender that the borrower will simply allow the house to go to sale if they don’t remove the deficiency language in the payoff. Simply cross out the deficiency language and send the payoff back to the negotiator.
Another strategy is to always include language in the Purchase Sale Agreement stating that the sale is contingent on the bank approval and each lender’s waiver of any rights to a deficiency.
So if you short sell, be sure your lender gives up their right to collect a deficiency judgment. The lender will then send you a 1099 form notifying you of the deficiency forgiven which in turn needs to be reported to the IRS as “unearned income.” If this is done before 2012, you can be exempt from paying taxes on this 1099 under the Debt Relief Act of 2007.
Read more: http://solidgroundblog.wordpress.com/2010/02/12/short-sale-and-deficiency-judgments-in-washington-state/
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