Short Sale


A Short Sale is when you sell your house for less than what you owe on your mortgage.

What is a Short Sale?

A short sale is a type of loss mitigation, with lender approval, as an alternative to foreclosure. When a homeowner is unable to keep up with mortgage payments, the homeowner can choose to sell the house. As a result, a short sale occurs when the market price is less than the outstanding mortgage on it.

However, the lender has agreed to accept less, or a discounted payoff, than what the homeowner actually owes.

Unfortunately, some states require that the homeowner pays the difference between the selling price of the property and what you still owe on the mortgage. As a result, a lender could then sue you to collect the difference. It may be advisable to get a waiver of deficiency. This waiver means that the lender relinquishes the right to collect the deficiency.

Foreclosure Versus Short Sale


A critical difference between a foreclosure and a short sale is who owns the home during the sale. In a short sale, the homeowner still owns the property. On the other hand, in a foreclosure, the bank try’s to sell the home directly, typically in an auction.

Impact on Credit Score and Credit Report

While both foreclosures and short sales occur when the homeowner is in financial distress, the consequences of each scenario vary greatly. Foreclosures negatively impact an individual’s credit score and credit report. For example, your credit score may drop 200 to 400 points. Once a foreclosure appears on your credit report, you will need to wait approximately seven years before qualifying for a new mortgage.

Alternatively, a short sale is kinder to the homeowner’s credit report and credit score. For instance, your credit score may drop 50 to 150 points. Additionally, the waiting period is only four years for a Fannie Mae or Freddie Mac guaranteed loan.


Short sales allow homeowners to stay in the home until the sale is complete. Afterward, borrowers can look into private programs, sometimes called “cash-for-keys,” to help with relocation expenses.

On the other hand, foreclosure forces homeowners to vacate, usually against their will.


Short sales are paperwork-intensive and require lender approval. It usually takes three to six months, but can be stretched out to up to a year. On the other hand, once the lender has access to the home, it will follow through with the appraisal and try to liquidate the asset as quickly as possible. As a result, foreclosures may not take as long to complete as a short sale.