How to Sell Your House Back to the Bank: A Guide for Homeowners

Selling your house back to the bank can be a daunting prospect for homeowners who are struggling with their mortgage payments. However, it can often be a viable option for those who are unable to keep up with their financial obligations. In this comprehensive guide, we will explore the process of selling your house back to the bank, also known as a short sale, and provide homeowners with the necessary information to navigate this complex transaction.

What is a Short Sale?

A short sale occurs when a homeowner sells their property to the bank for an amount that is less than what is owed on the mortgage. This option is typically pursued when homeowners are unable to make their mortgage payments and find themselves in a situation where foreclosure seems likely.

When a house is sold in a short sale, the bank agrees to accept less than the total amount owed on the mortgage, forgiving the remaining debt. This can help homeowners avoid foreclosure and minimize the impact on their credit score.

The Benefits of a Short Sale

There are several benefits to pursuing a short sale as a homeowner facing financial difficulties:

1. Avoiding foreclosure: Foreclosure can have severe consequences, including eviction and damage to creditworthiness. A short sale allows homeowners to exit the property gracefully and preserve their credit to some extent.

2. Debt forgiveness: With a short sale, the remaining debt after the sale is typically forgiven by the bank. This can provide much-needed relief for homeowners burdened by significant mortgage debt.

3. Control of the sale process: Unlike foreclosure, where the bank takes control of the sales proceedings, a short sale allows homeowners to actively participate in the selling process, providing a greater sense of control and ensuring a smoother transition.

4. Potential tax benefits: In some cases, homeowners may qualify for tax relief on the forgiven debt through the Mortgage Forgiveness Debt Relief Act. This act allows homeowners to exclude forgiven debt from their taxable income, reducing the financial burden of the short sale.

The Short Sale Process

While the short sale process can vary depending on the lender and individual circumstances, there are several key steps involved:

1. Financial hardship documentation: In order to be considered for a short sale, homeowners must provide detailed financial information to the bank, including proof of financial hardship. This could include documents such as bank statements, pay stubs, and tax returns.

2. Listing the property: Once the bank has approved the short sale application, homeowners can proceed with listing their property on the market. It is important to work with a real estate agent experienced in short sales to ensure a successful sale.

3. Negotiating with the bank: When a potential buyer submits an offer on the property, the bank must approve the sale. This can involve negotiations between the bank, homeowner, and buyer to determine an acceptable purchase price.

4. Agreement and closing: Once all parties have reached an agreement on the sale price, the transaction can proceed to closing. At closing, the property is transferred to the new owner, and the remaining mortgage debt is forgiven by the bank.

Finding the Right Real Estate Agent

Choosing the right real estate agent is crucial when navigating a short sale. Look for an agent who has experience with handling short sales and a track record of success. A knowledgeable agent can guide you through the process, handle negotiations with the bank, and ensure a smooth transaction.

Alternatives to a Short Sale

While a short sale can be a viable option for homeowners facing financial difficulties, it is important to explore all alternatives before proceeding with this course of action. Some alternatives to consider include:

1. Loan modification: With a loan modification, homeowners work with their lender to change the terms of their mortgage, making it more affordable. This could involve reducing the interest rate, extending the loan term, or forgiving a portion of the principal.

2. Refinancing: Refinancing allows homeowners to replace their existing mortgage with a new loan, potentially with more favorable terms. This can help reduce monthly payments and make the mortgage more affordable.

3. Renting the property: If homeowners are unable to sell their property at a price that covers the mortgage, they may consider renting it out instead. This can help generate income and cover some or all of the monthly mortgage payments.

4. Bankruptcy: In extreme cases, homeowners may consider filing for bankruptcy to halt foreclosure proceedings and provide temporary relief. However, bankruptcy should only be pursued after seeking advice from a qualified bankruptcy attorney.


Selling your house back to the bank, or pursuing a short sale, can be a challenging process for homeowners facing financial difficulties. However, with the right information and guidance, it can offer a way out of an unsustainable mortgage situation and help homeowners avoid foreclosure. It is important to consult with experienced professionals, such as real estate agents and attorneys, to ensure a smooth and successful short sale. By considering all alternatives and making an informed decision, homeowners can find the best solution for their individual circumstances and regain control of their financial future.

22 October 2023
Written by John Roche