What Is a Short Sale and How Can It Help You Avoid Foreclosure?

by Molly Heyen

If you owe more on your mortgage than your home is currently worth, you might feel stuck. Selling seems impossible, and foreclosure feels inevitable. But there’s another option worth considering: a short sale.

A short sale allows you to sell your property for less than the balance on your mortgage, with your lender’s approval. While it isn’t always the easiest process, it can be a powerful way to avoid foreclosure and move forward with less financial damage.

How Does a Short Sale Work?

In a short sale, your lender agrees to accept less than what you owe on your loan. For example, if you owe $250,000 but your home is only worth $200,000, your lender may approve a sale at the lower amount.

The proceeds from the sale go directly to the lender, and in many cases, this satisfies the debt—though sometimes lenders may still pursue what’s called a “deficiency balance.” This is one reason why it’s important to work with experienced professionals and, when needed, consult an attorney.

Potential Benefits of a Short Sale

Avoid Foreclosure: A short sale prevents the long-term damage that foreclosure can cause to your credit and financial future.
Protect Your Credit (to an extent): While your credit score will take a hit, it’s usually less severe than a completed foreclosure.
More Control: Unlike foreclosure, you have the ability to list and sell your home with the guidance of a real estate agent.
Possible Debt Relief: Depending on the lender’s terms, you may be released from owing the difference.

Challenges of a Short Sale

While short sales can be beneficial, they’re not without obstacles:

Approval Takes Time: Lenders often require significant documentation and can take months to respond.
No Guaranteed Outcome: Even with a buyer, the sale may fall through if the lender doesn’t approve.
Tax Implications: In some cases, forgiven debt may be considered taxable income. This is where consulting a tax professional is essential.

Is a Short Sale Right for You?

A short sale might be a good option if:

You’re behind on mortgage payments and foreclosure is likely.
Your home’s value has dropped below what you owe.
You’re ready to move on and avoid the long-term impact of foreclosure.

Explore Your Options with Support

A short sale is a complex process, but it can also be a valuable tool for distressed homeowners. Working with a knowledgeable real estate advisor can help you navigate the steps while ensuring your interests are protected.

If you think a short sale may be right for your situation, I’d be glad to walk through the process with you and connect you with the right resources.

Contact me to explore your options today.