What happens when your house sells for less than what you owe? Do you owe the bank that day? Can you wrap up the owed amount in a new mortgage?

Asked by Kara Higgins, New Jersey Sun Apr 10, 2011

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John Walin, Agent, Libertyville, IL
Mon Apr 11, 2011
There are two documents involved here. One is the short sale waiver, where the bank allows you to sell for less than is owed and the 2nd is the satisfaction letter that states your mortgage is paid off. The first, banks will usually go along with, the 2nd they need a hardship if you are attempting forgiveness for any part of that shortage. Normally, the bank will take a non collateralized loan for the shortage amount that you agree to pay off. If you have a death of spouse, divorce, loss of job as the reason for the home not being affordable you might be eligable to have the bank "forgive" some or all of the defficiency. If you have the money and the defficiency is small, like 5-10k just bring it to closing and you dont need to even approach the bank. If you have a hardship, write a hardship letter, call the loss mitagation dept at your bank and ask for a short sale package to be mailed to your home. They will want tax info for several years, basically you have to prove to disqualify for your present mortgage if you were applying for it now as a new mortgage.

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1 vote
My NC Homes…, Agent, Chapel Hill, NC
Tue Apr 3, 2012
If you are in the position, do yourself a huge favor and contact a local attorney who specializes in real estate. Unless you have already hammered out an agreement with the lender the short answer is you must bring a certified check to the closing for the shortfall. There is absolutely no possibility that you may wrap up the amount you owe in a new mortgage for any reason under any circumstances.

Unless you are prepared to simply write a check for the shortfall, please go speak with an attorney today.
0 votes
Jennifer Rie…, , Succasunna, NJ
Thu Jun 16, 2011
The answer is a short sale and depends on many things. Like if you are behind on payments and are going into foreclosure. The short sale process is tricky but depending on your hardship can be done. Different states have different laws and rules. For instance New Jersey is a no default state and unless the bank releases you from the debt you may still be responsible for paying. Make sure you have a really good short sale attorney. There are lots of questions an agent should ask you when doing a short sale. Different loans are done differently and if you have more then one loan you have to do the process a certain way. A short sale will affect your credit but not as bad a foreclosure will. Depending on your current credit you could buy another home more in your financial range anywhere from 1-2 years later. You may also try a loan modification through your mortgage company. Both of these options can take a long time. I hope this answer helped. Good luck. If you have further questions feel free to call.
Jennifer Riedener
Remax First Choice Realty
Succasunna, NJ
0 votes
Eli Givoni-S…, , Boca Raton, FL
Mon Apr 11, 2011
When you sell your house for less than you owe, this is called a short sale. If you have the money to cover the difference, you can pay them at closing. If not, we would negotiate out a short sale for you. We would try to get you off the hood for the deficiency. We are a professional short sale service and would be happy to explain the process to you. Please call us directly to discuss your specific situation. Our services are FREE to homeowners. We look forward to hearing from you.

Eli Givoni, Director
Short Sale Department, LLC
Serving all 50 states

MARS Disclosure for General Commercial Communications
Short Sale Department, LLC is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit.
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Barbara Bert…, , Sparta, NJ
Mon Apr 11, 2011
Dear My1ange1,
I am going to assume that you do not have the additional funds to pay off the difference between the sale price and your current mortgage because if you do have those funds, they are due and payable at closing to satisfy the mortgage debt.
Now, if you do not have those funds, it all depends on what type of Short Sale you are pursuing. If you qualify for a HAFA Short Sale not only would your debt be forgiven, but you would also be allotted a $3,000 credit towards moving costs by the bank. If you are not qualified for HAFA, then you would need to get a release of debt from the bank or they would have 5 years to pursue a dificiency judgement. You will not be allowed to wrap up the amount owed into a new mortgage because you will not qualify for a new mortgage for about 4-5 years if you pursue a short sale. There are many implications involved and as others have said, your best bet is to speak with a qualified Realtor who deals with this type of sale and knows about the HAFA process, an attorney familiar with both traditional and HAFA short sales and an accountant. For additional information, please visit my web site at http://www.ForeclosureHelpNJ.com .
Best of luck!
Barbara Bertone, Realtor, CDPE
RE/MAX Platinum Group
0 votes
Suzanne MacD…, Agent, Morristown, NJ
Mon Apr 11, 2011
There are many, many options to address this situation and a short sale is just one of them. Depending on how much more is owed than the home is worth you could, for example, bring cash to the table to make up the difference. Are you current on your mortgage payments? If so you may be able to find a way to short sell your current home and still qualify for a mortgage on a new home right away, but that is very, very tricky. If the difference is too great then a short sale is the way to go. You will need a realtor who is very familiar and experienced with the process as well as an attorney equally experienced in short sales. With the realtor you should look for the SFR (Short Sale and Foreclosure Resource) designation and/or for someone who has handled a lot of these transactions successfully. Same with the attorney.

A short sale will have a negative effect on your credit score. Therefore you need to talk to someone with a great deal of experience in these things, and someone who can help you explore ALL options, not just short sale, and someone who has an entire team to fall back on if you should encounter any unique situations during the negotiations.

My office, my team and I handle short sales and distress situations every day. I would be happy to help if I can. My cell phone number is 201-602-4458.
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Audeliz Angie…, Agent, Westfield, NJ
Sun Apr 10, 2011

My name is Angie Perez. I represent a number for clients, short sale clients. John is right below. What you are describing is a short sale.

A short sale is simply a situation in which a seller is unable to bring sufficient liquid assets to the closing table to satisfy all liens against real property, including the real estate transfer tax in NJ, real estate commission, legal fees, etc.

This is what we agents in the business call a short sale. A seller who is interested in selling their home short will need to get an approval from all lien holders to sell the home for less than what you owe. In which case, the difference between the sales price versus the amount owed could be package as an unsecured note or the difference can be forgiven.

Debt that is forgiven can be subject to income taxes, which you should consult a CPA to determine how a short sale can affect your taxable income.

Here's a good example of a short sale situation. I represented the seller of a 3 family investment property. My client did not live in the property and he was 9 months behind on payments before he decided to apply for a short sale. Because the home was not his primary residence and he owned more than one home, he was required to hold a small note of $10,000 in which case he makes monthly payments of $100 each month for the next 10 years until the balance is paid off interests free.

You might ask yourself why anyone would want to short sale. In my former client's case, he did not want the stress of managing the property nor foreclosure on his credit report. So, he agreed to the note. Everyone's short sale situation is different. The most important thing to remember I to a. consult a real estate attorney, one familiar with short sales. And b. speak to a short sale specialist like me or someone else and get an assessment of your situation and the value of your home.
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John Juarez, Agent, Fremont, CA
Sun Apr 10, 2011
What you are describing is a short sale. You cannot sell your house for less than you owe unless the lender(s) approves the sale. If you try, you will find that you cannot transfer the deed to the new owner because the lender will not allow that to happen unless the loan is paid. Your sale cannot go through.

I suggest that you discuss your situation with a local Realtor who is experienced in short sales. You may or may not qualify to short sell your house. If you contemplate a short sale, you should also seek pertinent advice from legal and tax professionals. The Realtor with whom you consult for a short sale should be able to make appropriate referrals to those professionals.

No. You will not be able to wrap any shortage into a new mortgage.

Good luck. You are in a difficult situation.
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Cynthia Freu…, Agent, Warren, NJ
Sun Apr 10, 2011
It is nearly impossible, if not completely impossible to mortgage more than the value of the home. So I don't see how you could wrap it into your next purchase.
But if you are selling short, it may be impossible to qualify for your next mortgage.
Keep in mind I am a real estate agent, not a mortgage rep or an attorney, so mine is just friendly advice, please consult those professionals.
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Dallas Texas, Agent, Dallas, TN
Sun Apr 10, 2011
You need to confer with the lender for those terms called a short sale, lenders handled these issues differently

Lynn911 Dallas Realtor & Consultant, Loan Officer, Credit Repair Advisor
The Michael Group - Dallas Business Journal Top Ranked Realtors
0 votes
Kevin Olson,…, Agent, Colorado Springs, CO
Sun Apr 10, 2011
This depends on your individual situation. Contact an attorney along with a Realtor to start figuring things out. Also, a financial advisor might be able to provide guidance. If you sell your home on a short sale, the deficiency is something most people try to get forgiven/waived, however it's not a guarantee. Honestly, contact each of the professionals listed above to find out what is right for you. There are cases where people are better off not selling short sale and letting the house foreclose. Every situation is different, and it's important to realize yours needs individual attention. Best wishes to you.
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Jane Shebroe, Agent, Jupiter, FL
Sun Apr 10, 2011
You should have the realtor negotiate a short sale with the bank if possible. That way if qualified the bank will settle the debt for the amount of the sale and you will not owe any more. For more detailed information, please email me at jmax123@aol.com
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