Short Sales in the Sacramento Region: How They Work and What They Do to Your Credit

This page is general information, not legal or tax advice. A short sale is when you sell your home for less than you owe on the mortgage, and your lender agrees to accept less. The CFPB's page on short sales (last reviewed February 2, 2024) calls it a type of loss mitigation and an alternative to foreclosure. Because it's a sale, you do move out.

The key word is "agrees." A regular sale only needs a buyer. A short sale also needs your lender's written yes, and the yes of every other lender with a loan on the home. Until that approval comes, the sale price is only a proposal.

Plenty of good people end up here. A job loss, a death in the family, a divorce, a medical bill or a parent's move into care can all leave a home worth less than its loans. There's nothing to be ashamed of. There's a plan to make.

Every lender has its own forms, but the path usually looks like this:

1. Talk to your servicer early. Ask about every option, including whether you could keep the home. The CFPB's "If I can't pay my mortgage" page (last reviewed August 28, 2026) says to contact your servicer right away and complete any assistance application it gives you.
2. Gather the hardship package. Most lenders want a hardship letter in your own words, plus income, bank statements, tax returns and a list of monthly expenses. Short and honest is better than long.
3. Price and list the home. The price has to make sense to buyers and to the lender's own valuation. We list it with clear notes that the sale needs lender approval.
4. Accept an offer, subject to approval. You sign with a buyer first. Then the signed contract goes to the lender with your package.
5. Lender review. The lender orders its own value check and reviews the file. It may approve, counter with a higher price or different terms, or decline.
6. Written approval and closing. Once every lienholder approves in writing, escrow closes like a normal sale and the proceeds go to the lenders as agreed.

Lender review usually takes longer than a regular sale, and no one can promise a date. We keep the buyer informed so they stay with you.

Possibly, so plan for the question early. The IRS's Tax Topic 431 on canceled debt (last reviewed September 24, 2026) says a creditor may send you Form 1099-C showing the amount canceled. Canceled debt is generally treated as income unless an exclusion applies.

One exclusion many homeowners relied on is for qualified principal residence debt. As of that IRS page, it covers debt discharged before January 1, 2026, or under a written arrangement made before that date. We found no official source extending it. Other exclusions can still apply, such as being insolvent (owing more than everything you own is worth) or debt discharged in bankruptcy. The IRS page on home foreclosure and debt cancellation (last reviewed July 20, 2026) notes that the rules work differently for nonrecourse loans.

State tax rules can differ too. Please talk with a tax advisor before you accept a short sale approval, not after the 1099-C arrives.

• Short sale. You sell to a buyer for less than you owe, with the lender's written consent. You stay involved in the price, the timing and the move.
• Deed in lieu of foreclosure. You give the home back to the lender and move out. The CFPB's deed-in-lieu page (last reviewed January 2, 2025) suggests making sure the agreement covers the full amount you owe and asking about relocation help, sometimes called "cash for keys."
• Foreclosure. The lender sells the home to collect the debt. In California most foreclosures happen without a court case. Our page on foreclosure alternatives explains the timeline.

If the home is worth more than you owe, none of these may be needed. A regular sale lets you keep the equity. The CFPB's "Avoid foreclosure" page (last modified September 30, 2026) says selling is usually better for your finances and credit than foreclosure.

Call (916) 549-3131. We'll start with your goal, what you owe, what the home might sell for and whether you have other choices. You can also send us a note or fill out the loan options form.

Before you sign anything, also consider a free HUD-approved housing counselor. HUD's counselor line is (800) 569-4287. They're on your side, and they don't charge for foreclosure help.