Will I Owe Money After the Sale? (Understanding Deficiency Waivers)
You’ve done the math. You know your house is worth $20,000 or $30,000 less than what you owe on your VA mortgage.
The biggest question keeping you up at night isn't about the sale itself. It’s about the "leftover" money. "If the house sells short, does the bank just forgive that $30,000? Or will they come after me for the rest of my life?"
This is the difference between a Deficiency Judgment and a Deficiency Waiver. And getting the right one is the entire goal of a VA Short Sale.
The Danger: The "Deficiency Judgment"
In a standard foreclosure (or a poorly negotiated short sale), the lender can legally pursue you for the difference between the sale price and the mortgage balance.
Example: You owe $200k. The house sells at foreclosure for $150k. The bank sues you for the remaining $50k.
This is a "Deficiency Judgment." It can lead to wage garnishment, bank levies, and a debt that follows you for years.
The Goal: The "Deficiency Waiver"
When we handle a VA Compromise Sale, our primary objective isn't just to sell the house. It is to negotiate a complete waiver of deficiency.
This means we get the lender (and the VA) to agree—in writing, before closing—that they are accepting the net proceeds of the sale as payment in full.
They agree to "waive" their right to pursue you for the remaining balance.
You walk away from the closing table with a $0 balance owed to the mortgage company.
"But What About the IRS?" (The Tax Question)
Disclaimer: We are real estate experts, not CPAs. Always consult a tax professional.
Historically, the IRS viewed forgiven debt as "taxable income." (i.e., If the bank forgave $30k, the IRS treated it like you earned $30k in salary). However, there are important exceptions that often protect distressed homeowners:
Insolvency: If your total debts exceeded your total assets at the time of the sale (which is true for most families in a short sale situation), you may not owe tax on the forgiven debt.
Legislative Relief: Congress frequently passes extensions (like the Mortgage Forgiveness Debt Relief Act) that exempt primary residences from this tax.
Why Who You Hire Matters
An inexperienced agent might get the house sold but fail to secure the Waiver of Deficiency in the approval letter. That is a disaster waiting to happen.
We review every line of the bank’s approval letter to ensure your liability is cut off at the closing table. We don't just want you to move; we want you to move on with a clean slate.
The Bottom Line
Don't let the fear of a "future bill" stop you from acting. If you are underwater, doing nothing (and letting foreclosure happen) guarantees the worst financial outcome. A professionally negotiated VA Short Sale is your best chance to walk away owing zero.
See If You Qualify for a Waiver We can review your mortgage details and give you an honest assessment of whether a full deficiency waiver is likely in your situation.