John, you need to read through the short sale approval letter. See if is contains any language like “Payoff,” “Forgiven” or “agrees to release the debt.” Have an attorney read it over to make sure that it says the debt will be released. If it doesn’t say the debt will be released, then here is how you can re-negotiate for them to issue a complete release.
- Request that the deficiency be waived. Tell the lender you will not short sale the property unless they give you a complete release.
- Show proof that you cannot afford the deficiency payment. A debt from an absolutely broke person is worthless. The lenders know this and will be willing to waive a deficiency if that is the case.
- Show proof that the lender will net more money from the short sale compared to a foreclosure. This is your agent’s job to do. They will put together a calculation showing how much the lender is netting from the short sale, and project what they would net from a foreclosure.
If you cannot prove that you income doesn't cover your bills, then you may need to look into other avenues. You can look into getting a forensic loan audit to see if the lender broke any lending laws on the loan.