What happens to the unpaid mortgage balance after a short sale closes?
One of the biggest concerns Florida homeowners have about a short sale is what happens to the mortgage debt that isn't paid off when the home is sold. If your home sells for less than you owe, are you responsible for paying the difference?
In most cases, no. In most successful Florida short sales, the lender agrees to release its lien and waive or forgive the remaining mortgage deficiency as part of the short sale approval. However, the exact outcome depends on your loan investor and the terms negotiated in your short sale approval. While Florida law allows lenders to pursue borrowers for deficiencies when properties end up in foreclosure, short sales are a different story.
Short sales give sellers the opportunity to avoid foreclosure by selling for less than what is owed, and a chance to negotiate how the unpaid balance on the mortgage gets settled.
While no promises can be made until the short sale approval letter is received and reviewed, well over 95% of the short sales we handle result in a full settlement, with the lender waiving its right to pursue the seller for the remaining mortgage deficiency. In fact:
- Fannie Mae and Freddie Mac have adopted streamlined guidelines with policies of debt forgiveness included for those who successfully short sell.
- FHA, VA and USDA policy is also to fully waive any balance with a successful short sale.
- Many other private investors currently waive their right to pursue any deficiency in a successful short sale.
There are currently very few lenders who in fact will not fully forgive debt in a short sale, but there are some. These are most commonly smaller lenders with portfolio notes who are not subject to the rules of any existing short sale program, and must be negotiated individually.
Where will I find the deficiency waiver in my short sale approval?
We always review all short sale approval letters for:
- Release of the mortgage lien
- Waiver/release of deficiency rights
If the terms are unacceptable, we can always attempt to renegotiate these terms before moving forward to close.
Can forgiven mortgage debt create a taxable event?
In a successful short sale, this forgiven mortgage debt creates a taxable event.
Creditors who forgive $600 or more are required to file Form 1099-C with the IRS.
Forgiven mortgage debt may have tax consequences. A lender that cancels qualifying debt may issue Form 1099-C, Cancellation of Debt. However, receiving a 1099-C does not necessarily mean that you will ultimately owe income tax on the forgiven amount. Various exclusions may apply depending on your circumstances. You may wish to consult with a tax professional to discuss the implications of receiving this 1099-C.
Is there a difference between owing money after a short sale and having to contribute money at the closing of a short sale?
Yes, there is a vast difference. While most homeowners have no out of pocket costs AND they receive full mortgage debt forgiveness with their short sale, some homeowners are in fact targeted for cash contributions and/or promissory notes, which is a totally different issue from being subject to a mortgage deficiency.
How can I make sure I receive full debt forgiveness in my short sale?
The single biggest factor affecting how your remaining mortgage debt will be handled is the investor that owns your loan. The experience of the Realtor negotiating your short sale can also make a significant difference, particularly when dealing with portfolio lenders, contributions, promissory notes, junior liens or unusual investor requirements.
Here at Reid Real Estate Group we've been negotiating short sales for our seller clients since 2008 and over 95% of our closed short sales have resulted in full debt forgiveness. We've helped hundreds of homeowners move on debt-free, and we can help you!
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Last Updated on August 18, 2026 by Minna Reid
