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What is a short sale on your home?

Syracuse, NY |

I am having financial difficulity paying my mortgage due to unforseen circumstances. The lender has advised me to contact a realtor and proceed with a short sale.

What is the process for the short sale?

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Attorney answers 2


In a short sale, the mortgage company agrees to take less than the full amount that they are owed as full and final payment on the mortgage. The short sale is better than a foreclosure in that when the foreclosure does not yield enough money to pay the full amount owed plus foreclosure costs and fees, then the mortgage company can come after you in court for what they claim is still owed, or the "deficiency." So, the short sale can be advantageous in that you do not have the deficiency hanging over your head. You should understand though that to the extent that any debt is forgiven, there is a tax consequence for that forgiven debt. This may or may not be of concern, depending on your income and taxation level. Also, understand that the short sale goes on your credit report.

This answer is provided for informational purposes only. Actual legal advice can only be provided in an office consultation by an attorney licensed in your jurisdiction, with experience in the area of law in which your concern lies.


I would only add to what my colleague says, the following regarding the tax consequences:

If you owe a debt to someone else and they cancel or forgive that debt (without donative intent), the canceled amount may be taxable.

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

More information, including detailed examples can be found in IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Also see IRS news release IR-2008-17.

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