Legal Question in Real Estate Law in Arizona

In a short sale transaction, the lenders agree to accept less than payment in full in exchange for the release of their collateral in order to facilitate the sale. Neither lender is under any legal obligation to do this.

The unpaid balances of the loans existing after the short sale is closed remain your responsibility unless you negotiate something different with the lenders. This is because in a short sale the collateral is released but not the promissory notes that you signed. A lender might agree to release you in full or in part or to accept a payment plan. Whatever it is that a lender representative promises you, get it in writing! And, I might add, have it reviewed by an attorney to make sure it really says what you think it is supposed to say.

Do not trust what your real estate agent tells you. I have personal knowledge of a transaction in which the real estate agent told the sellers they would be released from liability for the deficiency remaining after a short sale, but the papers submitted by the lender on the day of the closing said exactly the opposite.

A short sale is a negative on your credit history, but it is not as bad as foreclosure.