How does a short sale affect deficiency judgments in Indiana?

If you thought getting approval from your mortgage lender was all you needed to protect yourself from a deficiency judgment on a short sale in Indiana, well, you better sit down. Unless specifically negotiated with your lender, the short sale approval does not mean that the lender won't try to come after with a deficiency judgment holding you liable for what could be an enormous sum of money that you will be unable to repay.

Short sales are a good alternative to a foreclosure for the borrower and the lender. For the borrower, a short sale can have less of an impact on your credit and future ability to purchase another home and you are spared the indignity of foreclosure. For the lender, a short sale means that they stand to lose less money by avoiding the high expense of the foreclosure process plus, in Indiana (and some other states) lenders can file a deficiency judgment for the balance owed.

What many people don't realize is that at the time you are negotiating the terms of the short sale with your lender you should negotiate their agreement that the proceeds from the short sale are payment in full for your debt and negotiate a waiver of any future right to pursue a deficiency judgment. In other words, you want to negotiate forgiveness of the deficiency that will occur as part of the short sale.

This is the only way to ensure that you won't have to have the worry of a deficiency judgment hanging over your head.

If you are working only with a real estate agent, it is highly advisable that you consult with an attorney before signing any documents with your lender and preferable to involve an attorney even before you send any documents to your lender as an attorney can help you with your hardship letter and make sure all of your financial information is in order as well as review contracts before you sign them.