I owe more than my house is worth, are lender's still approving short sales?

As a 25+ year real estate agent who has worked just as long negotiating short sales for homeowner’s, let me explain the process as simply as possible.

What is a short sale?

A short sale is when the mortgage company agrees to accept a ‘short payoff’ or accept a payoff that is less than what you owe on the mortgage balance. For example, you owe $400,000, but your home is worth $325,000. In that scenario, a short sale would require the mortgage company to accept $75,000 less than what is owed.

Are mortgage companies currently approving short sales?

Yes, every mortgage company and every situation is different. Factors include, the borrower’s financial situation, type of loan, home value, market conditions, lender’s financial situation, etc. I would recommend hiring a real estate agent that has experience negotiating short sales.

What happens to the difference (between amount owed and what the lender ultimately accepts)?

That difference is called the “deficiency”. In the above example, the deficiency would be $75,000. Amount owed $400,000 less the net payoff to the bank of $325,000. The ultimate goal would be for the borrower to get the bank to accept the $325,000 as PAYMENT IN FULL and WAIVE the deficiency, so they borrower is no longer on the hook for that balance. Many variables will determine this, however, the borrower’s financial situation plays a significant role. Even if the bank waives the right to collect the deficiency, the borrower needs to consult a tax consultant as the deficiency balance could be treated as income on their tax return, in which the borrower could receive a 1099 showing that deficiency balance as income. Always seek advice from a tax accountant when considering a short sale.