To close your property the taxes have to be prorated until closing. These costs are your responsiblity for as long as you own the property. A short sale is when the lender authorizes the sale indicating that the lender will accept the short fall as a loss. Thus if you have 100000 mortgage total debt including taxes and insurance and when the short sale is authorized net proceeds are 85000 . This leaves a short fall of 15,000. The bank allows the sale to close short these funds being a payoff less than full/settled amount.

Depending on the banks policy,the bank may after the short fall via a defeciency judgement other banks may just process the payoff as a settled account. Both effect your credit report but a short sale is looked more favorable than a foreclosure.

If you want more information about foreclosure/credit issues/short sales and modification please check out my web site.


Keith Manson
First Weber Group
Certified Distressed Property Expert
Metro Milwaukee

You will receive no proceeds from the sale. However, you will be able to settle your debt with the lender, salvage some of your credit, and sell the house as opposed to having it foreclosed on.

Your not going to get a dime back... and most liekly, they will try to collect on you for the deficiency. I agree that a lawyer can help you with this and would encourage you to reach out to one. If you are dealing with CountryWide or Bank of America, you can almost forget about getting a short sale approved unless you have a lawyer as they are the worst out there in my opnion when it comes to working with the RE community to get properties sold. Im on a CW short sale now that we have been working on for over a year. we are on our 7th negotiatior... Stage 2, whatever that is. The client has not made a payment in over a year and is still in the property. The BPO came in VERY close to the contract price, yet no one at CW can get us to close. I honeslty think they WANT to foreclose and are just waiting for us to give up.

I am a Realtor in Charleston, SC and a Certified Loss Mitagator. When you sell your home as a short-sale, what you are doing is negotiating with your lender to accept less than what is owed on the property. Generally the escrows that you have accumulated pay the taxes and insurance accumulated up until the time you close on the property. If you have not been paying your payments, probably the amount escrowed will not cover those items. The short answer is that you will not get any money back even if there was an excess paid into the escrow account. That excess would go to the lender to help cover the loan deficiency.

Because there are differences in the laws in most states, you should check with both a lawyer who specializes in real estate short-sales & the accountant who handles your taxes. For instance, in SC taxes are paid in arrears and the taxes would be pro-rated at closing. Insurance is paid in advance, but also pro-rated on the final closing statement (HUD 1). But you will not get the benefit of any excess paid in. It will go to the lender who is taking the loss. It may not even be beneficial to you to short-sell. Many lenders will seek a "Deficiency Judgement" which will attach to other assets that you may have. In some cases, you would even get a tax bill from the IRS for the amount that the lender forgives. It is treated as a gift. The short-sale lawyer generally charges the lender a set fee and it is added in as an item on the closing statement so you will not directly pay him. There may be a better solution, such as a workout (home retention option) with your lender. Lenders in this climate are anxious to help you and may lower your interest rate, extend payment terms to lower your payment, & even forgive some of the debt. The VERY FIRST thing you need to do is contact your lender and ask for help. The problem will not go away by itself.

You need to be aware that there will be a big ding on your credit as a result of the short-sale, (although not quite as bad as a foreclosure), that will stay there for about 5 years. You will likely not be able to buy another property during that time. Bankruptcy generally stays for 7 years after discharge.

You can email me at: jwilson@carolinaone.com and I will be happy to answer specific questions, keeping in mind that I am not an attorney or tax advisor and that I am advising you to seek professional counsel.