Even if they can do they always? No.... but it is important to know what are the possible scenarios you are faced with.
In a short sale even if they "retain the right " to pursue a deficiency judgment there are still advantages to doing a short sale. here is an article explaining some quick reasons why....http://merrimackvalleymarealestate.com/2011/02/massachusetts
When I first answered your question HAFA didn't exsist. Their are many resources for HAFA and NAR has a brochure that is helpful to homeowners :
and a FAQ:
Read those and you will see how confusing things can get.
You need a Realtor who is trained how to handle Short Sales and knows how to guide you through the complicated process. Your agent will bring -in all the necessary players to help increase your chances of success. Always seek legal advice and always call your lender at the first sign of financial trouble. There are alot of other considerations to take into account, but every situation is different and that is why you need someone you can trust. You need to trust the Realtor because you will be shareing alot of personal info with him/her and ofcourse their will be lots of STRESS.
Good luck and God Bless.
The 3 typical outcomes of a TRADITIONAL short sale are:
1) No deficiency or ZERO deficiency - so they will not chase you for the balance, but a 1099C may be generated and you would need to talk to your accountant to see if you would fall under the debt forgiveness act and are insolvent.
2) Lender asks for a promissory note. This could rage from a few thousand to ANYTHING. So they may give you 4 years to pay off $15,000 for example and then not chase you for the rest.
3) They reserve the right to pursue you for the deficiency...WHICH means JUST THAT. They are reserving the RIGHT. It doesn't mean they will. It doesn't mean they won't. Statute is 20 years in NH and MA that they can collect if they do decide to pursue.
IF YOUR HOME IS FORECLOSED, they will likely pursue you for the deficient amount PLUS any other fees, court costs, home maintenance, etc., that they can tack on.
Good luck. I say go for the short sale, but then again, I buy short sales so I do think they have distinct advantages for homeowners.
A short sale in Massachusetts in most cases is better for you if you can negotiate one with the bank. Your credit will be healthier and you won't have a potential deficiency judgment hanging over your head.n There are some other considerations, but with out knowing your whole situation its hard to advise. If any of this is important to you consult an attorney. A good short sale negotiator will get the job done, hang in there. The banks take their sweet old time.
Most banks are not requireing repayment if the home is a primary residence but as Nancy said each bank is different. Speak to your bank about your different options you may be able to avoid the forclosure if the short sale doesn't work out by doing a modification or a refinance. They would rather talk to you than have you walk away from the home.
Each bank has a different way of handling the situation. I've had bank's 1099 the difference in loss (amount paid and amount owed). Then I've had banks make the sellers sign a Promisory Note that they will pay back the bank and you can make the arrangement with them. Then there are some banks that just write off the bad debt and the seller's never hear from the bank again.
The problem is with most banks there is no standard protocol as to how to handle a shortsale, thus making it more stressful for the seller, not knowing "what's going to happen".
Whatever the outcome, it's better to shortsale the property than to go to foreclosure. Statistics show that your credit can recover from a shortsale within 3 years as opposed to the 7 years damage to your credit from a foreclosure.
There are supposed to be rules & regulations being put into place by the govenment that would take the mystery out of "what happens". I would ask your tax consultant if he is aware of any rules as of yet or how the loss will affect your taxes.
Best of luck with your sale, and I would also say to use an agent who is familiar with the Shortsale process, as that process alone for the realtor can be quite difficult and arduous.