Who pays the difference between a short sale price and the actual amount owed?

Asked by Fatcat4221, Davenport, FL Mon May 4, 2009

My house is short selling for 128,000. I owe the mortgage company 259,000. Who pays the 131,000 difference if the house is sold?

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Keith Manson-…, , Milwaukee, WI
Tue May 5, 2009
This depends a number of differnt things. First is there only one loan involved or is there a second mortgage or a heloc loan. Lenders can go after the mortgagor if they file foreclosure in a judicial process allowing them to file a deficency. However,most lenders do not pursue the short fall. On seconds and Helocs they most likely will try to collect after the foreclosure sale.

Some lenders require the mortgagor to sign a docuement when the sale is approved to collect the shortage. It depends on the bank and investor policy. Most lenders are not trying to collect the short fall from the borrower.

The information from Anthony below is correct about the 2007 debt foregiveness act effecting your tranasaction.

Keith Manson
First Weber Group
Certified Distress Proeprty Expert
Greenfield, Wisconsin
2 votes
Anthony Roba…, , Harrison, NJ
Mon May 4, 2009
When a short sale is complete, the lender issues a satisfaction of mortgage and releases the borrower from all obligations. The difference is forgiven and that cancelled debt is reported to the IRS on a 1099 that you will receive. You may be liable for taxes on the cancelled debt as it is considered income.

If this is your principle residence, that income is excluded. This is part of The Mortgage Forgiveness Debt Relief Act of 2007 and applies to debts discharged between December 2007 and December 2009.

Hope that helps.

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