Short Sale Deficiency Effect on Other Properties Owned

If you have a deficiency from a short sale are other properties you own at risk of having a lien placed on them for the deficiency?

2 Answers

The answer is yes, if your state recognizes the deficiency judgment as it pertains to a mortgage deficiency.

There are specific events that must occur prior to a deficiency judgement. 

  • The mortgage holder of the deficient mortgage must request a judgment from the courts in the county where the real property is located. You may or may not be notified when this occurs.

  • The deficiency must be granted by a judge.

  • The mortgage holder can now pursue this judgment and may attach any properties that are associated with the mortgagor/s.

There are many ways to protect your other real property assets.

  • Real properties can be placed in a trust and I always suggest that you utilize the services of an attorney that specializes in Real Property Trust & Estate Law.  Their fee will is minimal as compared to the risk.

  • Real properties can be placed in Retirement Plans much like stocks and bonds. These assets are typically protected from many legal actions, including bankruptcy. Again, seek and consult a licensed retirement specialist for more specifics on this process and how it pertains to your circumstances.


If you are worried about your lender getting a deficiency judgment, then the best thing to do is contact an attorney to discuss asset protection strategy with the help of Land Trusts, Personal Property Trusts, etc. This will at least help you make it tough for your creditor to relieve you of your property, making them think twice about filing for a deficiency judgment.

The good news is that the bank cannot touch your IRA, 401(k), 403(b) and other retirement funds. On the other hand, if you used these to buy another property or asset, the bank can claim these funds. The reason for this is although creditors cannot claim retirement accounts, they can claim investment assets without special designation.

The best thing to do is talk to your lender about a short sale rather than going in for a foreclosure. If he agrees, you can prevent a deficiency judgment.

Another advantage with a short sale is that it can improve your credit, as it will feature as a ’settled debt’. Of course, it all depends on what your lender agrees to, so talk to him about it to establish how it will figure on your credit report and preferably get it in writing.