What Is a Short Sale?

Short answer

A short sale is selling your home for less than you owe on the mortgage, with your lender's approval, as an alternative to foreclosure. The unpaid gap is called a deficiency, so get any waiver of it in writing, and expect a 4-year wait for a new Fannie Mae loan, or 2 years with documented extenuating circumstances (as of November 2026).

Definition

Per Fannie Mae, a sale of the property in lieu of foreclosure that pays off less than the total amount owed and was pre-approved by the servicer.

Worked example

Example only: an owner in Homestead owes $420,000 and the home sells for $380,000. After $25,000 of commissions and closing costs, the lender nets $355,000, a $65,000 shortfall. The approval letter should say whether the $65,000 is waived. If it is not, the lender may pursue it; if it is, the forgiven amount may be canceled debt that the IRS treats as taxable income, often reported on Form 1099-C. Ask a tax professional before you sign.

Short sale vs foreclosure

• Who sells: in a short sale you sell, with servicer approval. In foreclosure the lender takes the home through the court.
• Deficiency: the CFPB says to ask the lender to waive it before the sale and keep the waiver in writing.
• Fannie Mae wait: 4 years after a short sale or deed-in-lieu, 2 with documented extenuating circumstances, per Selling Guide B3-5.3-07 (as of November 2026). Foreclosure has longer waits.
• FHA loans have their own waiting rules in HUD Handbook 4000.1; we check them for your file.
• Other options first: a loan modification may let you keep the home.

Taxes on forgiven debt

IRS Topic 431 says canceled debt is generally taxable. Its exclusion for qualified principal residence debt covers debt discharged before January 1, 2026, or under a written arrangement made before that date (as of November 2026). Other exceptions, such as insolvency, may apply. QMS is not a tax advisor, so talk to a CPA. When you are ready to buy again, see purchase options; rates vary daily, call 305-425-1990 for today's pricing.

In South Florida

Florida lets lenders seek deficiency judgments. Under F.S. 702.06, on owner-occupied residential property the deficiency can't exceed the debt minus the home's fair market value on the date of sale, and a homestead exemption creates a presumption the home is owner-occupied. A lender may also sue separately to collect, which is why the written waiver in your short sale approval matters. Condo owners should also clear association dues, which can be a lien on the unit.