Short Sale Process: Steps, Timeline and Your Options
A short sale means selling your house for less than you owe on the mortgage, with your lender’s written approval. You list the home, find a buyer, send the lender your hardship paperwork and the offer, then wait for a decision that can take months. If your home may sell for enough to pay off the loan, you may not need lender approval at all. A direct cash sale can close in as little as 7 days, and we explain below how that compares.
TL;DR
- A short sale lets you sell for less than the mortgage balance, but the servicer and the loan owner must approve the sale and the buyer’s offer before it can close.
- Expect a typical timeline of 3 to 6 months. Approval alone can take 30 to 90 days or longer, and incomplete paperwork is the most common cause of delay.
- Ask the lender to waive any leftover balance (the deficiency) in writing. In Michigan, a lender can sue for it if the agreement does not include a waiver.
- A short sale usually stays on your credit report for seven years, but it generally does less damage than a foreclosure.
- If your house is worth enough to pay off the loan, a cash sale skips lender approval and can close on a date you choose.
Table of Contents
- What a short sale is and when it makes sense
- The short sale process, step by step
- How long a short sale takes
- Who pays the difference: deficiency and Michigan law
- Credit and taxes after a short sale
- Short sale or cash sale: how to choose
- Perspective: what we see in Metro Detroit
- If a cash sale fits your situation
- FAQ
- Sources
What a short sale is and when it makes sense
The CFPB, the federal consumer finance agency, says you can ask for short sale approval when your home is worth less than your mortgage balance. You find the buyer, submit a complete application with supporting documents, and the servicer and the owner of the loan decide. The CFPB also notes these options are typically less expensive and take less time than foreclosure.
A few terms help here:
- Servicer: the company you send your mortgage payment to.
- Loan owner (investor): the company or agency that actually owns the loan, such as Fannie Mae or Freddie Mac. The servicer works under the owner’s rules.
- Deficiency: the gap between what the house sells for and what you still owe.
- Hardship: the reason you can no longer afford the home, such as lost income, a divorce, illness or a job relocation.
A short sale is a sale, so you will have to leave the home. The CFPB says a HUD-approved housing counselor can help you plan next steps. Zillow reports that lenders often will not consider a short sale until you are two to three months behind, and that the hardships most often accepted are lower income that makes the home unaffordable or a mandatory job relocation.
The short sale process, step by step
The steps below follow the order most servicers use. Each one shows where homeowners lose time.
1. Call your servicer and ask about short sale eligibility
Start with the number on your mortgage statement and ask for the loss mitigation department. Loss mitigation is the team that handles foreclosure alternatives. Ask which documents they need and whether you must be delinquent first. Write down the name of everyone you speak with and the date.
Where it goes wrong: homeowners wait until the foreclosure notice arrives. By then the calendar is working against you, because a short sale has to be approved and closed before a foreclosure sale date.
2. Gather your hardship documents
Zillow lists what lenders commonly ask for: bank statements, tax returns, income and expense reports and a hardship letter. The lender analyzes your income and assets and may ask you to contribute savings toward the loss. It will also want a market analysis and information about any other liens on the home.
Where it goes wrong: a missing page or an out-of-date pay stub restarts the review. Build one complete package before you submit anything.
3. List the home with a licensed real estate agent
Most short sales are listed on the market. Freddie Mac’s guide for borrowers describes the same path: document your hardship, get approval, submit an application, list with an agent, and have the servicer review the offer. Fannie Mae says the accepted offer should be as close to fair market value as possible, so an unrealistically low price will not be approved.
This step brings the usual listing costs and routines: photos, showings, open houses and an agent’s commission, which comes out of the sale proceeds the lender is deciding on.
4. Receive an offer and submit it with the short sale request
With a signed offer in hand, you send the servicer the offer plus your documents. Some servicers ask for the offer first. Bank of America, for example, says that in a traditional short sale the homeowner advertises the house and receives an offer before contacting the bank. Its process also requires a completed release from any second lien, such as a home equity loan or line of credit, before it can move forward.
If you have a second mortgage, both lenders must agree to the terms. Two approvals mean two timelines, and either one can stall the sale.
5. The servicer reviews, values the home and decides
The servicer orders a property valuation and a title report, may ask for more information and then approves, counters or declines. For loans owned by Fannie Mae, the servicing guide requires the servicer to acknowledge an offer within five business days and answer in writing within 30 calendar days of a complete package. A revised offer gets a decision within ten business days. Other loan owners and private lenders set their own timelines, and Bank of America tells homeowners to expect an answer in about 90 calendar days after the agent submits the offer and all documents.
Zillow’s advice is to follow up regularly with your servicer so your file does not get lost in the shuffle. That means calling every week, not waiting for a letter.
6. Close, and get the deficiency waiver in writing
Once the lenders approve, closing happens after the buyer’s loan is approved, funded and closed. Under Fannie Mae’s rules, the sale must close within 60 calendar days of approval unless an extension is granted. If the approval lapses before closing, you may have to start over.
The paperwork at closing is where the real money is decided. Read the approval letter for the line that says the sale satisfies the debt in full.
How long a short sale takes
Zillow reports that a short sale typically takes 3 to 6 months from start to finish, though complex cases with several lienholders can run past a year and simple ones can finish in as little as 10 days. Lender approval alone may take 30 to 90 days or longer. Zillow’s 2024 seller survey found a 50-50 split on whether at least one offer fell through.
The usual causes of delay:
- Missing or incomplete documentation
- A second mortgage or other liens that need their own approval
- Busy lender departments
- Extra approvals from the loan investor or a mortgage insurer
- A buyer whose financing falls through during a long wait for approval
That last point is why buyers sometimes walk away. A buyer who offered in January may not wait until May. If you want to see how a fast closing works when no lender approval is involved, this look at closing timelines for cash sales shows the pattern. For the traditional route, our home selling timeline guide lays out each stage.
Who pays the difference: deficiency and Michigan law
The CFPB explains that a deficiency is the difference between the property’s value and the amount you still owe, and that in some states a lender could sue to collect it after a short sale. It advises asking the lender to waive the deficiency before the sale and getting the waiver in writing.
This matters in Michigan. According to Nolo, a legal publisher, in Michigan the bank may get a deficiency judgment after a short sale unless the agreement expressly states that the bank waives its right to the deficiency. Nolo also reports that Michigan lenders have 10 years to collect on a deficiency judgment.
A worked example: you sell for $180,000 and owe $215,000. The deficiency is $35,000. With a written waiver, you owe nothing further. Without one, the lender may sue for the $35,000. Before you sign, have a Michigan real estate attorney read the approval letter. This is the one point where legal review is worth the cost.
Fannie Mae describes the good outcome: once the short sale is complete, the borrower is relieved of responsibility for any remaining balance, called a deficiency waiver. Fannie Mae also says some borrowers receive $7,500 in relocation assistance.
Credit and taxes after a short sale
Experian says a short sale shows on your credit report as a settled account for seven years, and that the score impact is largest at first. It also says a short sale is better for your credit standing than a foreclosure, especially if you have no missed payments. Fannie Mae adds that you may qualify for a new Fannie Mae mortgage in as little as two years after a short sale, versus up to seven after foreclosure.
Taxes need a separate look. Forgiven mortgage debt can count as income. The IRS’s instructions for Forms 1099-A and 1099-C say a debt cancelled at less than full payment, such as in a short sale, is an identifiable event reported to the IRS. The same page notes that the exclusion for forgiven debt on a main home expired on December 31, 2025 unless Congress extends it. Because rules like this change, ask a tax professional how a forgiven balance would be treated for the year you close.
Short sale or cash sale: how to choose
The two are different tools. A short sale is for a home worth less than the loan. A cash sale to a direct buyer works when the price covers what you owe, or when you are close to it and your options are narrow.
| Short sale | Direct cash sale | |
|---|---|---|
| Who must approve | Servicer, loan owner, any second lienholder | You |
| Typical timeline | 3 to 6 months | Offer in 24 hours, closing in as little as 7 days with us |
| Repairs and cleaning | Home is listed and shown | None, we buy as-is |
| Agent commission | Paid from proceeds | None |
| Showings | Yes | No |
| Best for | Home worth less than the loan | Home worth enough to cover the payoff, or the need to move quickly |
If you are behind on payments, the clock matters more than the label. Our guide to how a cash sale stops foreclosure before auction explains the sequence, and the Michigan foreclosure timeline shows how many months you may have. For a plain comparison of the two terms, read preforeclosure vs. short sale.
Perspective: what we see in Metro Detroit
We are a local cash buyer, and Dave Joseph buys houses directly across Wayne, Oakland and Macomb Counties. We have bought homes in Southeast Michigan for more than 16 years.
The homeowners who contact us rarely want a long negotiation with a lender. They want a date they can plan around. A written cash offer within 24 hours and a closing as soon as 7 days gives them that. They skip repairs, showings, agent commissions and open houses.
Not every house is a short sale, and many sellers facing foreclosure, an inherited house they cannot repair, a vacant property or a rental do not need lender approval to sell. If you owe less than the house is worth, selling directly can stop the process before it reaches auction.
Our advice is to start early, keep every document, and compare a three to six month timeline against the date on your notice. We are happy to walk through your numbers with no pressure.
Real Estate Team
If a cash sale fits your situation
We buy houses as-is in Metro Detroit, including homes in disrepair, inherited and probate properties, rentals, vacant houses, condos and fire-damaged homes. You get a fair all-cash offer within 24 hours, you choose the closing date, and there are no agent commissions or hidden fees. If you are behind on payments, start with our page on selling a house facing foreclosure.
When you are ready, request your cash offer in 24 hours and we will give you a written number. If you want to see how a cash close compares with a listing, read traditional vs. cash sale closing.
FAQ
How long does it take to do a short sale on a house?
Zillow reports a typical range of 3 to 6 months, with some cases taking from 10 days to more than a year. Lender approval alone may take 30 to 90 days or longer. Several liens or missing paperwork stretch the timeline the most.
Can a buyer back out of a short sale?
Yes. During a long approval wait, a buyer can withdraw or lose financing. Zillow’s 2024 seller survey found a 50-50 split on whether at least one offer fell through. Keeping your documents complete and following up with the servicer shortens the wait.
Who loses money in a short sale?
The lender takes the loss on the unpaid balance, and the homeowner loses the home and takes a credit hit. If the lender does not waive the deficiency in writing, a Michigan homeowner may still owe the difference. Forgiven debt can also create a tax issue, so ask a tax professional.
Is a short sale better than foreclosure?
The CFPB says these options are typically less expensive and quicker than foreclosure. Experian and Fannie Mae both say a short sale generally does less damage to credit and shortens the wait for a new mortgage. If your home is worth enough to pay the loan, a direct cash sale is also an option.
Sources
- CFPB: Avoid foreclosure
- CFPB: What is a short sale?
- Fannie Mae: Fact sheet on short sales
- Fannie Mae: Servicing Guide, Short Sale
- Fannie Mae: Mortgage options to leave your home
- Freddie Mac: Selling your home to avoid foreclosure
- Zillow: What is a short sale?
- Bank of America: Traditional short sale information
- Nolo: Deficiency judgment laws in Michigan
- Nolo: Deficiency judgments and foreclosure
- Experian: Short sale vs. foreclosure
- IRS: Instructions for Forms 1099-A and 1099-C