Washington State Department of Financial Institutions

Short Sales - Seller Advisory

Department of Financial Institutions and Department of Licensing

Recent economic challenges have resulted in many homeowners needing to sell their home but owing more on their home than the home is worth. The information below is intended to provide information to sellers in that situation. Information is from the Washington Department of Financial Institutions and the Washington Department of Licensing.

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What is a short sale?

A short sale is a real estate transaction in which the sales price is insufficient to pay the debt(s) and obligations encumbering the property along with the costs of sale, and the seller is unable to pay the difference.

Every short sale is dependent upon the seller’s lender(s) consenting to the transaction and agreeing to release the lender’s security interest in exchange for less than what is owed. In some cases however, the lender’s approval of a short sale does not necessarily mean the lender relieves the seller of liability for repayment of the entire debt.

It is possible the seller can sell the home and still owe the unpaid difference, plus interest and penalties, to the lender (the “deficiency”). The lender may then seek a deficiency judgment against the seller for this difference. If the judgment is issued by a court, it could be in effect for up to 20 years if not paid sooner. This is one of the most fundamental issues that sellers must address in considering whether to sell property as a short sale.

Simply “walking away” from the property through foreclosure also does not necessarily relieve a seller of these debts as while Washington State is a “non-deficiency” state that only pertains to the foreclosing party. A homeowner could lose their property to foreclosure generally to the 1st mortgage lien holder and still owe the balance(s) from the 2nd mortgage or other lien holders.

A short sale is a very complex transaction that involves numerous issues as well as legal and financial risks. All sellers are advised to seek the advice of a lawyer and tax professional before proceeding with a short sale.


Before proceeding with a short sale


Short sale considerations


Options other than short sale

A short sale may not be your best course of action. Consider all your options before making a decision.

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