What is a Short Sale?

A short sale is a legal arrangement with a mortgage lender to sell a property for less than is owed.

Financial distress is a painful, frustrating experience; however, there are ways to mitigate losses and a short sale is one of them. If you are behind on mortgage payments and do not expect to catch up, it might be time to consider a short sale.

When you purchased your home, you signed an agreement with your mortgage lender. You promised to pay back the money you borrowed to purchase your home. If you don’t pay as agreed, the lender has the legal right to sell the property and recover as much as possible.

Mortgage lenders can (but are not required to) remove the lien on your property for the purpose of selling it. When this occurs, the homeowner usually stops making mortgage payments.

Will a short sale protect my credit?

It is a common misnomer that a short sale is better for your credit than a foreclosure. According to an article published online by Equifax, “How a Short Sale or Foreclosure May Affect Your Credit Scores,” there really is no difference between the impact of a short sale and foreclosure. There are many other benefits to going with a short sale rather than foreclosure, but a lesser impact on your credit is not one of them. A short sale will likely show up on your credit report as “not paid as agreed.” Both will stay on your credit for seven years.

Here’s how a short sale works:

  1. The homeowner secures a formal written agreement with the bank to sell the home for less than is owed.
  2. The home is listed for sale.
  3. The bank must approve the price as a third party.
  4. When the home sells, the proceeds go to the bank.

If your home sells for less than is owed, there will be a “deficiency.” In Utah, the lender can get a deficiency judgment after a nonjudicial foreclosure. The bank has the option to file a lawsuit within three months of the sale. A mortgage lender does have the option to forgive the deficiency.

Is a short sale a good route to take?

Personal financial pressures and lagging real estate markets can lead to the need for a short sale or a foreclosure. A short sale can be a great benefit to the seller, the buyer, and the lender.


The seller can get relief from brutal financial pressure by working closely with the lender. 


The buyer can get a great deal on a home. 


The lender avoids the expense of foreclosure proceedings and can recoup most, if not all, of its mortgage investment.

Do you still have questions about short sales? Give me a call, I will be happy to answer them. Call or text 801-673-3333.

Joel Carson - Utah's # real estate agent

Joel Carson is the President and Principle Broker of Utah Real Estate with over 30 years of experience buying and selling real estate in the greater Salt Lake City area.

Have questions? Call or text me at 801-673-3333

Article Last Updated: October 26, 2023

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