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Short Sales: A Brief Explainer
A short sale is one path for people who owe more than the home is worth. This page explains what it is and who it applies to. It is deliberately brief.
Last reviewed July 2026. General information only, not legal, tax or financial advice.
What a short sale is
A short sale is a sale of your home for less than the balance on your mortgage, where the lender agrees in advance to accept less than it is owed and release its lien so the sale can close. The word "short" refers to the money, not the timeline.
Everything else follows from one fact: the lender decides. You do not, your agent does not, and your buyer does not. The lender controls whether it happens at all and how long it takes, and the waiting is often measured in months rather than weeks. If there is a second mortgage or another lien on the property, that lender has to agree too.
Who it applies to
Only sellers who owe more than the home is worth. That is the whole test. If a sale at a realistic price would cover the payoff, you do not need anyone's permission and this is not your path. Most people with low equity are in that second group, not the first. Our guide to selling with little or no equity lays out where you actually stand.
Two things worth knowing before you agree to one
The deficiency may or may not be forgiven. The gap between what the sale brings in and what you owed is called the deficiency. Whether the lender can pursue you for it afterward depends on your state and on the exact wording of the lender's approval letter. Get any waiver in writing, in that letter, and have an attorney read it before you close. A verbal assurance from anyone is not a waiver.
It damages your credit, and the tax treatment is not automatic. A short sale is reported and it hurts, generally less than a foreclosure but meaningfully. Forgiven debt can also carry tax consequences, and whether it does in your case depends on your circumstances and the law in effect that year. Have a tax professional look at the numbers before closing, not the following spring.
Often there is a better route
When a buyer takes over payments on your existing loan, nothing is settled short and no balance is forgiven, so the credit damage a short sale itself causes can be avoided entirely. It is not risk free: the loan stays in your name unless it is released, and if the buyer stops paying, that lands on you. But where it is available, it is usually worth looking at first. Read how a loan takeover works.
Why this page is short
A short sale is a bigger subject than this site covers. This site is about selling when you have little or no equity. If you are behind on payments, HUD-approved housing counseling is free, the counselors earn nothing on your decision, and it is worth a call before you decide anything.