A short-sale is recommended versus simply walking away from a property and stopping payments. The borrower (and his/her agent) will need to do a little bit of work, but the borrower's credit could remain untarnished.

The borrower should talk to the lender, specificaly, to the loss-mitigation or work-out department. The borrower can negotiate a deal directly with the lender. Unfortunately (and sometimes fortunately) every bank is absolutely different! So one never knows what the lender will agree to...

At the end of the day, the lender has the right to sue the borrower for the remaining, unpaid amount. It really depends on what the borrower (and/or his/her agent) can negotiate.

If the lender chooses to allow the borrower to sell at a discount, the lender may agree not to report it to the credit bureau(s) or  the lender may decide to sue the borrower for the deficiency. The lender also has the option of  choosing to sue the borrower for the deficiency. Finally, the borrower may also be liable to the IRS for the taxes on the deficiency amount.

NOTE: PRIOR TO MAKING A DECISION, A BORROWER SHOULD CONSULT A TAX AND LEGAL PROFESSIONAL.

Last updated on August 18, 2008 by Alex Avedano