Short Sale Basics 

Short Sale - A simple definition is a sale of real estate in which the net proceeds are short of the balance owed on the property's loan.

In my experience a short sale situation occurs when there is a loss of job, divorce, forced relocation, and illness. This usually stem from loss of home value because if there was value in the home then there would not be a short amount.  There are a number of reasons that a person may be unable to maintain their mortgage payments and has fell on Realtors to help homeowners through these situations and sell their real estate.  Maintaining dual households can drain your finances quickly.  It is important to understand that most people will exhaust all resources trying to pay their mortgage payments which seems like the best way to go but will eventually put that person into further debt and despair.  If you think that there is a possible hardship and you will be late on payments it is very important to act fast and explore your options.  Remember a short sale is your attempt at satisfying your obligation to the lender, this is a much better solution than walking away.

Below are some consequences of a short sale:

The typical result from a short sale is a lesser financial loss to the lender than foreclosure and smaller more manageable impact on the consumer's credit and debt.  Although this is a better solution than foreclosure it does not fully release the borrower from the loss the lender takes, unless agreed to in writing by the lender. 

Whenever debt is forgiven it is considered taxable income under the IRS rules. Therefore Lender's can issue a 1099 for the difference of what is owed and what is recovered in a Short Sale.  Currently the The Mortgage Debt Relief Act of 2007 allows taxpayers to exclude income from the discharge of debt on their principal residence.

In New Mexico and other States that allow for Deficiency judgments a lender can issue deficiency judgment on the difference of what is owed and what is recovered in a short sale.  This will be recorded in public records and put on your credit report…collection activity will follow.

Although a tax consequence or deficiency judgment from a short sale seem to be harsh it can be the best option you have.  A foreclosure can have long lasting effects that can potentially affect current and future employment, security clearance, your ability to purchase at prime rates even after 5 years, will remain on your public record forever, credit score reduced by 300 points and leave you with a larger deficiency judgment or taxable amount.  A short sale can leave you with very little impact to your credit and peace of mind.  Click foreclosure vs Short Sale consequences to read more.

**Note** 1099’s and Deficiency judgments if done correctly can be negotiated away.  This will give the homeowner a fresh start.


There is no cost to the seller in a short sale.  All fees, liens, HOA fees and commission is paid for by the lender.


I service the Albuquerque and Rio Rancho Real Estate Market.  Contact me to find out how I can help you avoid foreclosure.

We can help visit Prevent Foreclosure.

Posted by NMWelcomeHome Team Associates (505) 886-1432 on


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