Short Sales 101

Terms You Should Know


Short Sale –

A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property and the property owner cannot afford to repay the liens full amounts, whereby the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt. Any unpaid balance owed to the creditors is known as a deficiency. Short sale agreements do not necessarily release borrowers from their obligations to repay any deficiencies of the loans, unless specifically agreed to between the parties.

A short sale is often used as an alternative to foreclosure, which mitigates additional fees and costs to the both the creditor and borrower. A short sale will often result in a negative credit report against the property owner, however it is less damaging than a foreclosure report.


Deficiency Judgment-

A deficiency judgment is an unsecured money judgment against a borrower whose mortgage foreclosure sale did not produce sufficient funds to pay the underlying promissory note, or loan, in full.  The availability of a deficiency judgment depends on whether the lender has a recourse or nonrecourse loan, which is largely a matter of state law. In some jurisdictions, first mortgages are non-recourse loans, but second and subsequent ones are recourse loans.



A lien is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation. A mortgage loan is recorded as a lien against the property as security.  Some liens can be non-voluntary, such as a judgement, taxes owed, child support etc.  All liens need to be satisfied or released upon the transfer of ownership in a short sale.



The Internal Revenue Service (IRS) considers any amount of forgiven debt as taxable income.The forgiving creditor must provide the taxpayer with a 1099-C tax form for amounts $600 or greater. In Oregon, a creditor cannot issue a 1099-c AND pursue a deficiency judgment.


Homestead Exemption

In Oregon, a homeowner is allowed to keep $40,000.00 in equity as protection from involuntary liens.  Therefore, any involuntary liens against a property that would cause the homeowner to have less than $40,000 in equity can be removed without being settled. There are exceptions such as IRS liens.



Home Affordable Foreclosure Alternatives. A government sponsored short sale plan that allows Home Owners to avoid foreclosure AND have no further debt owed on mortgages.  Get the details HERE


Chase Short Sale Outreach –

This program offered to only a select number of Chase account holders offers up to $20,000 as an incentive to complete a short sale.  Chase will waive all deficiency amounts as well.  Currently, this is an outreach only and is not something that can be applied for.  It si being rolled out in waves as a test.  More information can be found HERE


Loan Modification-

The systematic alteration of contractual mortgage loan agreements.  A Mortgage Loan is modified from its original terms to better assist the home owner in making their monthly obligations to their mortgage holder.