In a short sale, the homeowner sells a property for less than is owed on the mortgage. But California law prohibits deficiency judgments following short sales of residential properties with no more than four units.

What is deficiency Judgement short sale?

A deficiency judgment is a court ruling placing a lien on a debtor for further funds when the sale of secured items falls short of the full debt owed. Depending on your state, it may be that during a foreclosure deficiency judgments are prohibited.

What happens if you get a deficiency judgment on a short sale?

In many states, the lender can seek a personal judgment against you after the short sale to recover the deficiency amount. Generally, once the lender gets a deficiency judgment, it may collect this amount—in our example, $50,000—from the borrower by doing such things as garnishing your wages or levying your bank account.

How does a short sale work to avoid foreclosure?

The lender agrees to accept the sale proceeds and release the lien on the property. The proceeds of the sale pay off a portion of the amount owed. Short sales are one way for borrowers can avoid foreclosure. (Learn more about short sales to avoid of foreclosure .)

What happens after a short sale is completed?

After the short sale is completed, your lender may call you or send letters stating that you still owe money. These letters may come from an attorney’s office or a collection agency and will demand that you pay off the deficiency. Your lender or the collector may even try to intimidate you into making payments.

Can a bank garnish wages with a deficiency judgment?

However, without an actual deficiency judgment, the lender cannot freeze your bank accounts, garnish your wages, or place judgment liens on other property you may own. To get a deficiency judgment, the lender must file a lawsuit.