Does a Short Sale Cost the Seller Anything Out of Pocket?
Usually not at closing. The commission and most of the selling costs come out of the sale price, and the lender agrees to take what's left.
But "usually" is doing work in that sentence. There are three places money can come from you anyway: a cash contribution the lender asks for, the balance the lender doesn't forgive, and taxes on the part it does forgive. When I checked what Google and the AI tools say on this question, they skipped at least two of them.
What the Sale Price Covers
In a short sale the lender approves a list of costs that get paid out of the sale before it takes its share. What's on that list depends on who owns your loan, and the approval letter is the document that settles it for your file.
Fannie Mae publishes its list in its servicing guide, section D2-3.3-01, so it's the clearest example. Costs it allows to come out of the sale include:
- The real estate commission, customary for the market and capped at 6% of the sale price
- Title and settlement charges the seller normally pays
- Past-due HOA fees
- Prorated property taxes and transfer taxes
- Buyer closing costs the seller customarily pays in that market
The same section says the seller doesn't walk away with money from the sale. Neither the seller nor the buyer can receive "any funds or commissions from the sale," with one exception: if the house was your principal residence, Fannie Mae pays a $7,500 relocation incentive after a successful short sale. You lose that payment if the lender requires you to contribute cash.
FHA, VA and privately held loans have their own rules. The pattern is similar. The numbers aren't always the same.
When the Lender Asks You to Chip In
A lender can ask the seller to put cash in.
Fannie Mae's guide says the servicer looks at a cash contribution when your non-retirement savings are over $10,000, or when your housing payment is 40% or less of your income. The first request is the larger of 20% of those non-retirement savings or four times your monthly payment, and it can't be more than the shortfall. The servicer can also agree to no contribution at all.
If your loan is current or less than 60 days behind, the minimum is 20% of your non-retirement savings. And if the number works out to less than $500, the requirement is waived.
Retirement accounts are left out of that math on purpose. The guide says "non-retirement" every time.
The Balance That Doesn't Always Go Away
Florida lets a lender go after the leftover balance. That leftover is called the deficiency.
Florida Statute 702.06 puts a ceiling on it for an owner-occupied home. In a short sale the deficiency can't be more than the outstanding debt minus the fair market value of the house on the date of sale. If the county shows a homestead exemption on the property before any foreclosure was filed, the law presumes it was owner-occupied.
A ceiling isn't a waiver. Whether the lender gives up the rest depends on the loan and on what the approval letter says.
For Fannie Mae loans, the guide requires the servicer to release you from the deficiency after a successful short sale, as long as the loan has no mortgage insurance, or the mortgage insurer has handed that decision to Fannie Mae. Other loans don't come with that promise built in. The waiver language in your approval letter, or the lack of it, is the most important paragraph in the whole file. That's a question for a Florida attorney before you sign, not after.
Second Mortgages and HOA Balances
A second mortgage has to agree to the sale too, and it usually wants something. Fannie Mae caps what can go to all junior lienholders combined at $6,000. In exchange, the second lienholder has to give up its right to a deficiency and can't ask you for a cash contribution.
HOA and condo balances don't disappear at closing either. Under Florida law the buyer becomes jointly liable for unpaid assessments that came due before the sale (720.3085 for HOAs, 718.116 for condos). That's why they get paid off the settlement statement, and why Fannie Mae lists past-due HOA fees as an allowed cost.
Taxes on the Forgiven Part
When a lender forgives debt, the IRS generally counts it as income. Publication 4681 says it plainly: "Generally, you must include the canceled debt in your income."
There used to be an exclusion for a principal residence. According to the IRS's Form 982 instructions, it covers discharges before January 1, 2026, or ones under a written arrangement entered into before that date. Other exclusions, insolvency for one, still exist.
I'm not your CPA. If a short sale is on the table, talk to one before you sign.
Can I Sell My House If I Owe More Than It's Worth?
Where I Fit
I'm SFR certified, that's Short Sales and Foreclosure Resource, and the short sale is the part I do. I'll walk you through what your lender's list allows, what it's asking you for, and what the approval letter says about the balance.
The deficiency fight and the tax question belong to an attorney and a CPA. I'll tell you that in the first conversation.
I'm based in Jacksonville and licensed in Florida. If you're out of state, I can't represent you, but I can put you with someone in the SFR® network who can.
If You Want to Talk
You don't need to have it figured out first. If you've got questions, reach out and we'll go through where you stand.
Jim Armstrong, REALTOR® · Momentum Realty · SFR® Certified JimArmstrong904@gmail.com
Jim Armstrong is a licensed real estate agent (REALTOR®) with Momentum Realty. This page is general information, not legal, tax, or financial advice. Lender rules change and every file is different. Consult a Florida attorney, a CPA, or a HUD-approved housing counselor about your situation.
Momentum Realty is not associated with the government, and our service is not approved by the government or your lender.
Even if you accept this offer and use our service, your lender may not agree to change your loan.