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Q: Can a Home Be Sold for Less Than
Its Mortgage?

A: Sometimes. But it is a
complicated process and a lot will depend on the lender.

This process is called a “short
sale,” which occurs when a lender agrees to write off the portion of a mortgage
that is higher than the value of a home. But, usually, a buyer must be willing
to purchase the property first.


A short sale may be more complex if
the loan has been sold in the secondary market.  Then the lender will need
permission from Freddie Mac or Fannie Mae, the two major secondary-market

If the loan was a low down payment
mortgage with private mortgage insurance, the lender also will need to involve
the mortgage insurance company that insured the low down payment loan.

The short sale can keep the homeowner
from landing in bankruptcy or foreclosure. But it is not an easy procedure to
approve, and it involves as much, if not more, paperwork than an original
mortgage application.

Instead of proving your credit
worthiness and financial stability, you must prove you are broke. And any
remaining difference between your home's value and the balance on your mortgage
is considered a forgiveness of debt, which usually means it is taxable income.


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