The full explanation
If the lender approves, the sale proceeds pay off the mortgage even if they do not cover the whole balance. In some states the lender can later sue you for the difference, called the deficiency. That is why the CFPB says to ask the lender to waive the deficiency and to keep the waiver in writing.
An example
Andrés owes more than his home is worth and can no longer pay. His servicer agrees to a short sale: Andrés finds a buyer, the bank receives the sale money and gives him in writing that it will not collect the difference.
You will see it in…
- Your servicer's letters about options to avoid foreclosure
- The short sale approval letter
- The deficiency waiver
