Short Sale Texas Guide: Owing More Than Your Odessa House Is Worth
Owe more than your Texas house is worth? How a short sale works, what the lender asks for, how its clock compares with foreclosure, and what to ask about the leftover debt.
You owe more on the house than it would sell for, the payments are behind or about to be, and you live in Odessa or anywhere else in Texas. This short sale Texas guide covers what a short sale is, who has to agree to it, what the lender asks for, how its clocks compare with a foreclosure, and what to ask about the debt that is left over.
How does a short sale Texas lenders approve actually work?
A short sale is a sale for less than the mortgage balance, where the lender agrees to accept the smaller payoff instead of the full amount. You and the buyer sign a contract, but the lender is the party whose answer decides the deal. Until it approves in writing, the contract price means little, because the sale cannot pay the loan off in full.
Federal mortgage servicing rules list the short sale as one of the standard loss mitigation options, alongside loan modification, repayment plans, forbearance and a deed in lieu of foreclosure. So you can ask your servicer about a short sale as a normal request, not as a last resort.
What will your lender ask for before it approves?
Expect to prove a hardship and to document your finances. Short-sale lenders want a hardship letter that explains what changed, such as a job loss, an illness, a divorce or a payment you can no longer carry, along with recent pay stubs, bank statements and tax returns. Incomplete packages are one of the most common reasons these files stall.
The lender will also order its own valuation, usually a broker price opinion or an appraisal, to decide what the house is worth. If the house needs work, document the repairs with photos and estimates. If someone else will talk to the lender for you, the lender will want your signed authorization first.
Other parties may need to sign off too. A second mortgage or home equity loan, the mortgage insurer and the investor that owns your loan can each have a say. When the approval letter arrives, read its terms and deadlines carefully and close inside them, because approvals that expire are a common way these deals fall apart.
Does the lender have to agree to a short sale?
No. A complete application sent more than 37 days before a foreclosure sale must be evaluated, but evaluation is not approval. The same federal rule says that nothing in it requires the servicer to give any borrower a specific option, so keep your other options in view while you wait for an answer.
The servicer does have deadlines. If your application arrives at least 45 days before a scheduled foreclosure sale, the servicer must tell you in writing within five business days whether it is complete or what is missing. If a complete application arrives more than 37 days before the sale, the servicer must evaluate it and send a written decision within 30 days.
How does the short sale timeline compare with a Texas foreclosure?
The two run on different clocks, and the foreclosure clock is the one with fixed dates. Under federal rules, a servicer generally cannot make the first foreclosure notice or filing until you are more than 120 days behind. In Texas, the servicer must then send a default notice giving you at least 20 days to cure before it can send the notice of sale.
The notice of sale must go out at least 21 days before the sale, and Texas foreclosure sales are held at the county courthouse on the first Tuesday of the month, between 10 a.m. and 4 p.m. A short sale has no fixed calendar. It moves as fast as the paperwork and the lender's review, so starting early is the part you control.
A complete application can also hold off a sale. If you send a complete loss mitigation application more than 37 days before a scheduled sale, the servicer cannot go forward with that sale while your application, and any appeal, is still under review. Keep a record of when you sent every document.
What happens to the debt the sale does not cover?
Ask before you sign. A short sale pays the lender less than you owe, so the approval letter should say what happens to the difference. Read whether it releases you from the remaining balance, and if the letter is silent, ask the lender to put its answer in writing. A Texas real estate attorney can read the letter with you before you commit.
After a Texas foreclosure sale, the lender has two years to sue for a deficiency, the gap between the debt and the sale price. The borrower can ask the court to determine the property's fair market value. If that value, less any other liens still on the property, is higher than the sale price, the difference is credited against the deficiency. The borrower has to ask and bring evidence of the value; otherwise, the sale price is used.
Taxes are the other question. Federal tax law lists income from the discharge of debt as gross income, with exceptions written elsewhere in the tax code. Whether forgiven mortgage debt is taxable for you depends on those exceptions, so talk with a CPA before you accept a short-sale approval.
Where should an Odessa owner start?
Start with numbers in writing. Call your servicer, ask for a written payoff statement and the loss mitigation application, and ask whether a short sale is available on your loan. Then get a realistic value for the house as it stands today, including what it needs. Those two figures tell you whether you are truly underwater, and by how much.
It also helps to see what a real buyer would pay for the house as it is. The House Buyers Texas page for owners who search we buy houses Odessa TX is one place to ask for that number. If an offer covers the payoff, you may not need a short sale at all. If it does not, any sale you accept would need the lender's approval.
The rules in this post are statewide and federal, not local. An owner in Odessa and an owner trying to sell a house as is in Dallas face the same notice periods, the same servicer review and the same questions about the leftover debt. What differs is the house's value and how far behind the loan is.
This post is general information, not legal or tax advice. For advice about your loan, an approval letter or a deficiency, talk with a Texas real estate attorney and a tax professional.