A short sale doesn’t automatically erase what’s owed — whatever the sale doesn’t cover is a deficiency some states allow lenders to pursue separately.
How it works
Net sale proceeds (sale price minus closing costs and liens paid) are compared against the mortgage payoff balance — whatever the payoff exceeds net proceeds by is the deficiency.
What this does not include
Whether a lender can actually pursue a deficiency judgment (and whether forgiven debt is taxable) both depend heavily on state law and the specific loan type — this calculator computes the dollar deficiency only, not its legal or tax consequences.
How to use this calculator
- Enter the mortgage payoff balance, sale price, and closing costs.
Frequently asked questions
Is a short sale deficiency always forgiven?
No — it depends on the lender’s approval terms and state law; some states restrict or bar deficiency judgments on certain mortgage types, while others allow them.
Is forgiven deficiency taxable?
Generally, yes, as cancellation-of-debt income, though specific exclusions (like insolvency or certain principal-residence provisions) may apply depending on current law and individual circumstances.
Does a short sale hurt credit less than a foreclosure?
Often somewhat, though both are significant negative credit events — the specific impact varies by credit scoring model and individual credit history.
