Short Sale

If your mortgage balance is higher than your home’s current value, a short sale may be a way to settle your debt and avoid foreclosure. In a short sale, your lender agrees to accept less than the full amount owed when you sell the property.

How Does a Short Sale Work?

Typically, lenders consider short sales if you are at least 90 days behind on mortgage payments, though some have approved them for homeowners who are current on payments. The lender wants to get the highest possible offer on your home.

Once you submit an offer to your lender, they will take 60–90 days to review the property’s value, often ordering an appraisal or broker price opinion (BPO). During this time, it’s important your real estate agent works closely with the appraiser to ensure an accurate valuation.

Your lender will then either approve the offer, issue a counteroffer, or reject it. If the buyer doesn’t accept the lender’s terms, your agent can relist the home as an approved short sale, adhering to those terms.

Once both lender and buyer agree, the sale proceeds like a normal real estate transaction, including inspections and financing.

Pros of a Short Sale

  • No cost to you: The lender pays all transaction fees.

  • Stay in your home: You can remain in the house during the sale process.

  • Avoid foreclosure: The sale settles your mortgage debt.

  • Future home loan eligibility: You may qualify for a new mortgage in 2–3 years.

Cons of a Short Sale

  • The process can be lengthy.

  • You must complete an application and provide financial documentation.

  • Approval is not guaranteed.

Professionals You’ll Need

  • Real Estate Broker: Experienced in short sales; paid by the lender at closing.

  • Short Sale Negotiator: Will be paid by the buyer or lender through closing costs.

  • CPA or Tax Advisor: Debt forgiven in a short sale may be taxable income. Confirm any tax liability before proceeding.

Important Tax Considerations

In a short sale, the lender may forgive the difference between what you owe and what the sale brings in. It’s critical to get written confirmation that the lender will not pursue a deficiency judgment for the remaining balance. Visit the IRS website to understand the tax implications of forgiven debt, and consider consulting a financial advisor, accountant, or attorney to review your situation.

Need Help Exploring Short Sales?

If you owe more than your home is worth and are considering a short sale, we’re here to guide you through every step. Reach out to a tax consultant like Paige Tax Consulting or fill out our contact form for a free consultation and market analysis. Both can be found on our Contact page.