Short Sales in New York - Deficiency Judgments

As an attorney I have been working with homeowners in the luxury real estate market in Manhattan.  As we have been completing short sales, the banks have waived the deficiency judgments on loans that are close to the sale price.  However, in a recent Bank of America short sale - the loss is in excess of 500K -- I was presented with the following language that the bank would not waive the deficiency unless state law required it.

Is there a New York State law that requires waiver of the deficiency in a short sale?  The short answer is no. 

How contrary is this?  When you access the New York State Banking department's website, it specifically states:

•  "Short Sale:  The lender lets the borrower sell the house for less than the outstanding loan amount, takes the proceeds and forgives the remaining debt."

However after I called the Banking Department about this claim, no one could answer my questions, and they suggested that I speak with an attorney.  Interesting.

After speaking with several real estate attorneys, and the New York City Bar's attorneys who specialize in foreclosures - the answer is the same -- there is no law that says the bank must waive the deficiency judgment.  It seems to me as a reasonable person, that the bank would recognize that after all the work performed to acquire a buyer for a property at a higher amount then the bank would be able to receive in foreclosure, that waiving a deficiency is a better choice than taking the bankruptcy route.  But then again, who ever said that the people at the banks are reasonable?

Keep this in mind - bankruptcy is the option to all of this and in New York State there is no law that says (at the time of this post) that a bank must waive the deficiency against the homeowner for the amount of the loan that will not be paid off in a proposed short sale.

At my law site I have further information regarding foreclosures, short sales, and loan modifications.