A short sale in the real property (real estate) context—also known as a pre-foreclosure sale—is made when a homeowner sells their home for less than the balance due on the mortgage loan after the lender (bank) agrees to accept the lower amount in full satisfaction of the loan balance (a deficiency waiver).
Although the bank may waive its right to recover the balance or deficiency from you after the proceeds of a short sale are applied to your loan balance, a short sale will usually have a negative impact on your credit score—often as much as a foreclosure.
In Maryland, a short sale occurs when a homeowner sells their property for an amount less than what is owed on the mortgage, with the lender's approval. The lender may agree to a deficiency waiver, which means they forfeit the right to pursue the homeowner for the remaining balance of the loan after the sale proceeds are applied. While this can release the homeowner from the financial obligation, it is important to note that a short sale can still negatively affect the homeowner's credit score, potentially comparable to the impact of a foreclosure. Maryland law requires that any agreement to forgive the debt be in writing, and homeowners should be aware that there may be tax implications for any forgiven debt. It is advisable for homeowners considering a short sale to consult with an attorney to understand the legal and financial consequences.