The first question we hear is whether you can sell a house for less than you owe. You can, and we cover your options on our page Can I Sell My House If I Owe More Than It’s Worth? The next question is always about the gap: if the house sells short, does the bank come after you for the rest?
It can, depending on how the sale is handled. The amount you still owe after a sale or foreclosure is called a deficiency. Here’s what that looks like on a typical Las Vegas home today:
- Loan balance: $400,000
- Market value: $375,000
- Selling costs (commissions, title, escrow), about 7%: $26,000
- Net from the sale: about $349,000
- Deficiency: about $51,000
In 2010 we saw deficiencies of $200,000. Most of the owners we talk with now are closer to $50,000 short. That’s still a lot of money to have hanging over you after you’ve moved.
In a short sale, the approval letter decides it
When your lender approves a short sale, it sends an approval letter. That letter matters more than any other document in the deal. Before you sign anything, make sure it says the lender accepts the sale proceeds as full satisfaction of the debt. If it says the lender reserves the right to collect the balance, you could still owe the difference after closing.
Have a real estate attorney read the approval letter. We cover when you need an attorney and when you need an agent in Short Sale Attorney or Agent?
Every loan on the house has to sign off
If you have a second mortgage or a HELOC, that lender has to approve the short sale too, and it gets paid last. Second lenders often ask the seller for a cash contribution or a promissory note in exchange for releasing the lien. Read their approval letter as closely as the first one. A clean release on the first loan doesn’t help you if the HELOC can still come after you.
After a foreclosure
Nevada limits deficiency judgments after a foreclosure. Under NRS 40.455, a lender has to apply to the court within six months of the foreclosure sale, and a court has to hold a hearing on the property’s fair market value first. Some owner-occupied purchase loans are protected from a deficiency judgment entirely, depending on when the loan was made and whether it was refinanced. Whether that protection applies to you is a question for an attorney.
Foreclosure takes the decision out of your hands. A short sale lets you negotiate the deficiency in writing before you close. If you’ve already received a notice of default, read our page on what happens next and act before the deadlines in your packet.
Forgiven debt and taxes
When a lender forgives a deficiency, you’ll likely receive a Form 1099-C for the forgiven amount. The federal rule that let most homeowners exclude forgiven mortgage debt on a primary residence expired at the end of 2025, so this matters more in 2026 than it has in years.
We are not CPAs or attorneys, and this is not tax or legal advice. How a deficiency or forgiven debt affects you depends on your situation. Talk to a tax professional and a real estate attorney before you agree to a short sale or any debt forgiveness.
Know your number first
Start with what your house would net today. Our upside-down calculator takes about two minutes. If the gap is real, reach out to us. We’ll pull a real value, show you the numbers, and help you get the approval letter right.
— Jeff and Lee Ann Mix
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