Key takeaways
- A short sale needs your lender’s written approval to accept less than the full payoff.
- Ask for a written deficiency waiver. Without one, you could still owe the difference.
- Mortgage guidelines usually treat a short sale more favorably than a foreclosure when you buy again.
- Forgiven debt can be taxable. Talk to a tax professional.
What is a short sale?
A short sale is a sale of your home for less than the amount needed to pay off the loan, with the lender agreeing to accept the proceeds. If there’s a second mortgage or other lien, each lienholder usually has to agree too. Approval is never automatic, and the lender will want to see a hardship letter, financial documents and an offer from a buyer.
Short sale vs. foreclosure at a glance
| Short sale | Foreclosure | |
|---|---|---|
| Who controls the sale | You, with lender approval | The lender, at a public auction |
| Remaining debt | Can be waived in writing by the lender | Lender may seek a deficiency if the sale is confirmed by a court within 30 days |
| Buying again: Fannie Mae loans | Generally a 4-year wait | Generally a 7-year wait |
| Timing | Often several months for lender review | Set by the lender; first-Tuesday sale |
| Moving out | On the date you agree to | After the sale, often through a dispossessory case |
Waiting periods vary by loan program and circumstances; ask a loan officer about your situation.
Get the deficiency waiver in writing
The single most important term in a short sale approval is whether the lender releases you from the remaining balance. Read the approval letter carefully, or have an attorney read it, and look for language waiving the deficiency. If it isn’t there, ask for it before you close.
Taxes on forgiven debt
When a lender forgives debt, it may send you an IRS Form 1099-C, and the forgiven amount can count as taxable income. Exceptions such as insolvency may apply, and the rules for forgiven mortgage debt on a main home have changed over the years. Ask a tax professional before you sign.
Short sales need time
A short sale can stall if the sale date arrives before the lender approves it. Ask your servicer whether it will postpone the sale while a short sale is under review, and get the answer in writing. If you have equity instead of a shortfall, you don’t need a short sale at all; a regular or cash sale can pay off the loan.
This guide is general information for Georgia homeowners, not legal, tax or financial advice. Laws and lender practices change, and every situation is different. Talk with a HUD-approved housing counselor (800-569-4287) or a Georgia attorney about your circumstances.