by 
The Curious Bag
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A short sale means the borrower and bank agree to terminate the mortgage if the debtor sells the home and gives all to the bank. However, sometimes the sale price of a home is less than the balance on the mortgage, creating a deficiency.
Types
Short sale deficiencies come in two types: deficiency by judgment or payment without deficiency by judgment. Deficiency by judgment means the seller retains liability for the remaining balance on a mortgage after a short sale. Without a deficiency judgment, the debtor has no obligation other than to sell the home for as much as possible.
Benefits
Both types of short sale deficiencies nullify the loan, but a judgment can go on a credit record and affect future lines of credit.
Significance
With the 2007 housing crisis came a serious decline in home values, resulting in more short sale deficiencies. Short sale deficiencies were almost unheard of before that because prices climbed nearly every year.
Considerations
Even with a short sale without a judgment, the borrower has a different, but lesser liability: taxes. Banks send people a 1099 tax form for miscellaneous income for the amount of the deficiency.
Tips
No matter what type of short sale happens, the person with the mortgage may not receive a 1099 form and a deficiency judgment--only one or the other.
Source:
Bryan Ellis: Short Sale Deficiency Balances
Simon Volkov: Short Sale in Real Estate May Save You from Foreclosure
Real-Estate-Online: Do Homeowners Still Owe Money After a Foreclosure?
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