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Short Sales and Deeds in Lieu: Leaving a Home with Mortgage Debt

When keeping a home is no longer workable, the details of leaving still matter. Selling for less than the mortgage balance, transferring the property to the lender, and going through foreclosure are different processes. Before agreeing to one, ask what happens to any remaining debt, your move-out timeline, and the documentation of the final arrangement.

The questions below use selected Consumer Financial Protection Bureau guidance, adapted and organized by Fynoptic. Source links and the dates displayed by those sources are provided at the end.

What is a short sale?

A short sale, which is a type of loss mitigation, is a sale of your home for less than what you owe on your mortgage.

Tip

See our handout for more information on how to avoid foreclosure.

A short sale is an alternative to foreclosure, but because it is a sale, you will have to leave your home.

If your lender or servicer agrees to a short sale, you may be able to sell your home to pay off your mortgage, even if the sale price or proceeds turn out to be less than the balance remaining on your mortgage.

If you live in a state in which you are responsible for any deficiency, which is the difference between the value of your property and the amount you still owe on your mortgage loan, you will want to ask your lender to waive the deficiency before you go through with a short sale. In some states, after a short sale, your lender could sue you to collect the amount of the deficiency. Getting a waiver of deficiency means that the lender waived the right to collect this amount. If the lender waives the deficiency, get the waiver in writing and keep it for your records.

If you choose this option, a U.S. Department of Housing and Urban Development (HUD)-approved housing counselor can help you plan your next steps. Borrowers who are seeking short sales should also ask about help with relocation expenses through other private programs sometimes called “cash-for-keys.”

For help in exploring your options use the CFPB's "Find a Counselor" tool to get a list of housing counseling agencies in your area that are approved by HUD. You can also call the HOPE™ Hotline, open 24 hours a day, 7 days a week, at (888) 995-HOPE (4673).

What is a deed-in-lieu of foreclosure?

A deed-in-lieu of foreclosure is an arrangement where you voluntarily turn over ownership of your home to the lender to avoid the foreclosure process.

A deed-in-lieu of foreclosure may be an option if you are trying to move out of your home and avoid foreclosure. This may help you avoid being responsible for any amount left on the mortgage and avoid foreclosure, both of which can affect your ability to purchase another home in the future. If you are considering a deed-in-lieu of foreclosure, make sure that it covers the entire amount of money you still owe on the mortgage loan.

If you are unable to pay your mortgage, you need to take action before the bank begins foreclosure proceedings. The worst thing you can do is nothing. Learn how you can avoid foreclosure, or see our handout for more information. You may also have options that allow you to stay in your home, so you should contact your lender first and see what options they can offer you.

If you’re considering a deed-in-lieu of foreclosure, also ask your lender or servicer about help with your relocation expenses through private programs that are sometimes called “cash-for-keys.”

If you live in a state where you are responsible for any deficiency, which is a difference between the value of your property and the amount you still owe on your mortgage loan, you can ask your lender to waive the deficiency. If the lender agrees, ask for the waiver in writing and keep it for your records. You may still incur a tax liability, so you may want to speak with a tax professional or attorney.

To learn more about your options, or to plan your next steps if you choose the deed-in-lieu of foreclosure option, use our Find a Housing Counselor tool to find a U.S. Department of Housing and Urban Development (HUD)-approved housing counseling agency.

How does foreclosure work?

Foreclosure processes differ by state. They are generally done in two ways. If done by filing a lawsuit, it is called "judicial foreclosure." In some states, the lender can foreclose without going to court, and that is called "non-judicial foreclosure." State foreclosure processes require that the borrower(s) be notified regarding the foreclosure proceedings. There are also other federal rules that may apply.

Tip

Use this checklist for more information on how to avoid foreclosure.

Foreclosure is when the lender takes action to satisfy the homeowner’s debt out of the sale of collateral (the homeowner’s property) when the homeowner fails to make payments on a mortgage. Foreclosure processes differ by state.

Typically, if you fall a few months behind on your mortgage payments, the foreclosure process may begin (although the process can begin earlier or later). Don't wait for the foreclosure process to begin. Reach out for help as soon as you think you might have trouble paying your mortgage.

The foreclosure process generally may proceed in one of these ways depending on your state:

  • Judicial foreclosure. This requires that the process go through a court where the borrower can raise defenses.
  • Non-judicial foreclosure. This is done without filing a court action and is carried out by a series of steps, including required written notices under a "power of sale" clause in the mortgage or deed of trust.

The laws generally provide that certain notices and procedures will be followed. After that occurs, a public auction of your property generally will be held. Prospective buyers, including your lender, will appear at the sale, and the property will be sold to the highest bidder. Additional state laws generally will set forth the process for consummating and conveying your property to the bidder (which would be the lender if it was the highest bidder) and describe additional steps and procedures that must be followed. Some states may also provide you with the right to mediation prior to foreclosure. Be sure to read your mail and any legal notices carefully and act promptly on notices you receive.

If you are having trouble paying your mortgage, you may have options.

You can use the CFPB's "Find a Counselor" tool to get a list of counseling agencies in your area that are approved by the Department of Housing and Urban Development (HUD). You can also call the HOPE™ Hotline, open 24 hours a day, seven days a week, at (888) 995-HOPE (4673).

If you’re facing foreclosure or have been served with legal papers, you may also need to consult an attorney.

Military members or veterans can call the Department of Veterans Affairs (VA) or visit the VA’s home loan website to get personalized assistance. Military members may also contact their local JAG office for more information. To find your JAG Legal Assistance Office, use the locator.

If I lose my home to foreclosure, can I ever buy a home again? What impact will a foreclosure have on my credit report?

It is possible to qualify for a mortgage after a foreclosure. However, foreclosure will hurt your credit.

Foreclosure information generally remains in your credit report for seven years from the date of the foreclosure. Even if you have a bad credit history or a low credit score, you may qualify for an Federal Housing Administration (FHA) loan. You may also qualify for a subprime mortgage, but note that subprime mortgages may have much higher interest rates than most other mortgages. Carefully consider the costs and risks of the loan that you are offered, and weigh the costs of the loan you might be able to get now against the option to wait and build up your credit history before buying a home.

Tip: Use our checklist for more information on how to avoid foreclosure.

Sources and further reading

The CFPB source passages are U.S. government work in the public domain. Fynoptic has selected, organized, and adapted the material for this guide, including corrections identified through the additional sources listed above. Sources accessed October 27, 2026. This use does not imply agency endorsement or affiliation.

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