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What is a Short Sale?

A short sale is a real estate transaction where the lender and the homeowner mutually agree to sell a property less than the initial mortgage. Usually, the essence of a short sale is to help a homeowner out of financial distress especially when they can no longer meet the payment requirements. The lender agrees to overlook the debt incurred from selling the property short of the mortgage price.

How do you make a Short Sale as a Homeowner?

Like any other real estate transaction, you should consult competent and experienced persons before making a short sale. It is enough that you are already selling your home for a lower amount than the cost price; you don’t want to go through prolonged stress in getting a buyer or fall into the hands of cheats.

To make a short sale as a homeowner, you must involve three important persons: your agent, legal backup, and your lender. You can’t make a short sale without the consent of your lender. If you do so, you could set yourself up for issues of fraud and property theft. You also want to make your short sale rightly to not put the new buyer in trouble which could bounce back on you.

What is the Short Sale Process?

The short sale process, first of all, involves obtaining the consent of your lender to sell the property for a lower price. You must prove to your lender that you do not have any other means of paying the debt, or they may not agree to this deal. Hence, you must show some financial hardship credibly and convincingly.

After this, the property is all ready to be put out for sale. Short sales are pretty tricky to handle, and you should employ an experienced real estate agent in that field to guide you. It should be disclosed to all potential buyers that the property is being sold on a short sale. The buyer and the lender can then make a bargain for the sale price.

It could take anything from a couple of weeks to few months to get a house sold on a short sale. Despite the buyer’s apparent gain, many may still be skeptical about buying a home through a short sale. However, with patience and display of expertise, serious buyers will soon come knocking.

What Happens after the Short Sale is Completed?

After the deal for a short sale has been closed, you should be considered legally free of all previous mortgage debts. You may, however, be at risk of a deficiency judgment where the lender seeks legal grounds to retrieve the deficient mortgage amount from you. To avoid this, you and your lender have to mutually agree to whatever resolves you make before the sale. There should be a signed agreement to waive the deficiency judgment, and this should be accompanied by the appropriate legal backup.

Tax Consequences for Debt Forgiveness

If your lender forgives your mortgage deficiency, you may be liable to having the amount included in your taxable income to the federal government. This is because your lender will issue a Cancellation of Debt form, which will automatically make the debt amount part of your taxable income.

However, you could waive the tax consequences through the Mortgage Forgiveness Debt Relief Act of 2007. The act remains valid till the end of 2025 and covers all signed agreements before 2026. Meeting the requirements for this act could exclude the mortgage deficiency from being part of your taxable income.


Selling a property on a short sale can help you address financial burdens and mortgage issues. While some may have reservations about it, employing the proper techniques will help you get a buyer in no time. The most essential part of a short sale is getting your lender to consent to the deal. An experienced real estate agent can guide you through the process or take important steps on your behalf.

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