If you owe more on your home than it’s worth and can no longer afford your mortgage payments, you may have heard the term “short sale” as a potential solution. But what exactly is a short sale, how does it work in Texas, and what does it do to your credit?
Here are honest answers to all of those questions.
What Is a Short Sale?
A short sale occurs when a homeowner sells their property for less than the outstanding mortgage balance — with the lender’s approval. The lender agrees to accept the proceeds from the sale as full or partial satisfaction of the debt, even though those proceeds fall short of what is actually owed.
Short sales are an alternative to foreclosure. They allow the homeowner to sell the property and move on, while allowing the lender to recover more money than they typically would through a lengthy and costly foreclosure process.
How Does a Short Sale Work in Texas?
The short sale process in Texas typically follows these steps:
The homeowner contacts their lender to request short sale approval and submits a hardship letter explaining why they can no longer make payments.
The property is listed for sale — often with a real estate agent experienced in short sales or directly to a cash buyer.
When an offer is received, it is submitted to the lender along with a complete short sale package including financial statements, tax returns, bank statements, and other documentation.
The lender orders an independent appraisal or broker price opinion to verify the offer reflects true market value.
The lender’s loss mitigation department reviews the package and either approves, counters, or rejects the short sale.
If approved, the sale closes and the lender receives the proceeds. The homeowner is released from the property and typically from the remaining mortgage balance, though this depends on whether the lender waives the deficiency.
How Does a Short Sale Affect Your Credit Score?
A short sale typically causes a credit score drop of 100 to 150 points, depending on your starting score and other factors. This is significantly less damaging than a foreclosure, which can drop your score by 200 to 300 points or more.
After a short sale, most mortgage lenders require a waiting period of 2 to 4 years before you can qualify for a new home loan. After a foreclosure, that waiting period extends to 7 years for conventional loans.
What Is a Deficiency Judgment in Texas?
A deficiency judgment is a court order requiring you to pay the remaining balance after a short sale or foreclosure. For example, if you owed $120,000 and the property sold for $90,000, the deficiency is $30,000.
In Texas, lenders have the right to pursue deficiency judgments after short sales unless they specifically waive that right in the short sale agreement. Always get written confirmation from your lender that they are waiving the deficiency before closing on a short sale.
Is a Short Sale Better Than Foreclosure?
In most cases, yes. A short sale is less damaging to your credit, gives you more control over the timeline, and allows you to negotiate the deficiency waiver. Foreclosure is a public legal process that is significantly more damaging to your credit and financial future.
However, short sales take time and are not always approved. If your foreclosure sale date is approaching quickly, a fast cash sale may be a more practical option.
Questions About Your RGV Property?
If you are facing mortgage difficulties on a property in McAllen, Edinburg, Harlingen, or anywhere in the Rio Grande Valley, call Sunbelt Cash Offer at (956) 884-4441. We can walk you through your options honestly and at no cost.