Short Sale Deficiency

A short sale agreement should, ideally, provide in clear and explicit language that a seller is released from all financial responsibility upon closing of the short sale. Some agreements do so provide. But often specific release language is omitted and the short sale agreement provides only that the lien will be released to enable the sale to close.

Where does this leave the Seller? Is the Seller responsible for any deficiency remaining after the short sale? Arizona caselaw provides some help. Tanque Verde Anesthesiologists, L.T.D. Profit Sharing Plan v. The Proffer Group, Inc., et al 836 P.2d 1021, 172 Ariz. 311 (Ariz. Ct. App. 1992) provides authority for the proposition that a Seller must affirmatively agree to pay a Short Sale deficiency to be bound. A short sale agreement that is silent on this point is not enough. In order to hold a Seller responsible, a lender must have some evidence that a Seller agreed to repay a deficiency remaining after the deed of trust has been released. The best evidence of this agreement, of course, is a document signed by the Seller. However, other evidence such as correspondence or e-mail might be sufficient to show the existence of such an agreement. The Tanque Verde case is helpful, but is not dispositive in all instances. Each case will be determined on its unique facts and circumstances.