Editor’s note and correction: While there is mention of specific deadlines and expirations for deficiency judgments in this video, please note that state laws do vary widely on deficiency judgments, whether they are permissible, and the timeline in seeking the judgments.

Review applicable state laws and federal policies. View a related column published today: "Investor ponders short sale’s long-term risks," information about the federal Mortgage Debt Relief Act of 2007, and Internal Revenue Service Publication 4681 for details.

Episode 34: Some states allow lenders to seek deficiency judgments to recoup money they did not recover from the homeowner in the event of a distressed sale, with restrictions on the method and timing for seeking such judgments.

The federal government’s Mortgage Debt Relief Act of 2007 does allow for debt forgiveness through 2012 related to the sale of a principal residence. Also see details in Internal Revenue Service Publication 4681: "Canceled Debts, Foreclosures, Repossessions and Abandonments."

In this edition of The Wheel Estate Cam, real estate broker Frank LLosa of Frankly Realty says he fears that lenders will seek deficiency judgments in growing numbers to make up for previous losses in sales of distressed properties, and he encourages real estate professionals to be cautious about contract language relating to deficiency judgments.

He suggests that homeowners who are targeted with deficiency judgments could question the role of real estate agents or brokers in negotiating a contract that contains language relating to deficiency judgments.

"Some of them are going to be going after Realtors for not advising them properly," he says.

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