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Am I Able to Sell my House for Less Than What I Owe? (Short Sale)

Commonly referred as a “short sale”, this happens when someone offers to buy your home for less than what you owe the lender. The home cannot be sold without the lender’s approval because they must release the lien. No potential home buyer will want to purchase a home without a clear title, meaning there are no liens.

Putting the home up for sale:

To get the home on the market you should contact an attorney and a realtor and explain your situation. The realtor can track you down a buyer that makes an offer on the home while the attorney will explain your case to the bank. If the lender agrees to remove the lien for less than what you owe, the home can be sold.

If there is a deficiency you may still be liable:

Don’t forget that in Florida, the lender can still sue you for the deficiency unless you work out a deficiency waiver prior to the sale. If you are unable to get your lender to waive the debt before the short sale it would probably be better to let the home go into foreclosure and hire an attorney. This is ONLY if you are trying to get out from under the home.

The downside to a short sale:

The most frustrating issue with short sales is you must have an actual buyer make an offer before the lender tells you they will accept or not. The lender will not simply tell you what they will be willing to settle for. If you are in an area where home buyers are difficult to come by it may take a long time to even get an offer. It also will affect your credit. Keep in mind if you have been missing mortgage payments your credit most likely is already affected.

IMPORTANT: You may be responsible for the taxes of forgiven debt

If you are able to sell your home in a short sale and your lender forgives the debt, that forgiven debt is deemed taxable income by the IRS. Meaning if the lender agrees to forgive you of $10k the IRS will see it as you making $10K and will want to tax it. If you are eligible for the Mortgage Forgiveness Debt Relief Act of 2007, you may not owe anything.

Key Foreclosure Terms:

Short Sale - When your lender agrees to let you sell your home for less than what you owe on it. Only works when you have a legitimize offer from a buyer. Leaves you with a deficiency.

Clear Title – Ownership of property where there are no fights over who owns it.

Lien - a right to keep possession of property belonging to another person until a debt owed by that person is discharged. When you take a loan out to buy a car, the lender agrees to front you the money as long as they place a lien on the car. This is what allows them to repossess the car if you stop making payments before the car is paid off. It works the same with all loans.

Deficiency - The remaining balance left over if the home is sold for less than what you owe. (Example: If your home sells for $75,000o but you still owed $100,000 on the mortgage, the deficiency would be $25,000 )

Deficiency Waiver - A signed agreement between the lender and the borrower in which the lender agrees to not pursue the deficiency owed by the borrower. (Example: If the borrower has a left over deficiency of $25,000 the lender agrees to writes off that debt and it is no longer owed)

Foreclosure FAQs

Am I able to sell my house for less than what I owe on it? (short sale)

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