Selling a Columbus Home for Less Than You Owe: Your Options and What to Ask First

A homeowner at a kitchen table reviewing paperwork and a laptop with a calm expression, a For Sale sign visible through the window.

If your home may sell for less than your mortgage balance, you have options beyond waiting. Here is how a short sale works, what to ask your lender, how forgiven debt can be taxed in 2026, and why professional advice matters.

Most sellers in Central Ohio have built equity, but not every homeowner is in that position. If you bought recently, borrowed against your home, or need to sell quickly for a job move, the sale price may fall short of what you owe. That is stressful, and it is also more common to navigate than many people realize. Here is a plain-language overview of the options, with a clear note that this is general information and not legal, tax or financial advice.

What Does It Mean to Sell for Less Than You Owe?

It means your home's sale price, after costs, would not cover the mortgage balance and any other liens. Owing more than a home is worth is often called being underwater. If you cannot sell without a gap, one option is a short sale, where you sell with your lender's consent for less than you owe, according to Credible's guide to short sales, which was updated in July 2026.

A short sale is generally treated as an alternative to foreclosure for owners who can no longer afford their payments. Credible also notes that it is often a last resort if you can catch up on the loan or stay in the home.

How Does a Short Sale Work?

The lender has to agree before you can sell. Typically that means submitting a hardship letter with documents such as bank statements and bills. Common hardships include job loss, divorce, major medical costs, or rising adjustable payments, according to that guide. A lender may deny a request if you have cash reserves or assets that could cover the balance, and if there are multiple liens, each lienholder must approve.

Timelines vary by lender and can take many months. That is why talking to your lender early matters, and why choosing an agent with short sale experience can help keep the process organized.

What Happens to the Gap Between the Sale Price and the Loan?

That gap is called a deficiency. Credible explains that in non-recourse states lenders generally cannot pursue it, while in recourse states the lender could sue unless the agreement includes a deficiency waiver. The guide recommends consulting a real estate attorney and asking for any waiver in writing. Whether Ohio rules apply to your loan and situation is a question for an attorney, not something to assume from a general article.

How Can Forgiven Debt Be Taxed in 2026?

This is the part that surprises people. If a lender forgives part of what you owe, the IRS may treat the forgiven amount as income. According to an October 2026 Beancount.io guide, the qualified principal residence indebtedness exclusion expired on December 31, 2025. The guide says debt discharged in 2026 is still excludable only if it was discharged under a written arrangement made before January 1, 2026, and that other 2026 cancellations are generally taxable.

The same guide describes the insolvency exclusion as the main remaining option, which lets some taxpayers exclude canceled debt up to the amount by which their liabilities exceeded their assets, claimed on IRS Form 982. Lenders send Form 1099-C when they cancel $600 or more. Because these rules are technical, talk to a tax professional before you agree to any deal.

What Does a Short Sale Do to Your Credit?

Credible says a short sale can lower your credit score significantly depending on your profile, though it usually does less damage than a foreclosure, particularly if you have not missed payments. You may be unable to get a new mortgage for up to two years. If you plan to buy again after relocating, ask a lender how long you would need to wait.

What Should You Do Before You List?

Start by getting clarity on three numbers: your payoff, your realistic sale price, and the cost of selling. Your agent can prepare a market analysis based on recent sales, and your lender can give you a payoff figure. Compare those before you decide anything.

Also consider the alternatives. You may be able to wait, adjust your timeline, or negotiate with the lender. A HUD-approved housing counselor can review your options, and an attorney can explain your rights. Pricing the home correctly and preparing it well can narrow the gap, since a home that sells faster and closer to its value may reduce what you owe after closing.

Frequently Asked Questions

What is a short sale?

A short sale is when you sell your home for less than you owe on the mortgage, with your lender's consent. It is generally considered an alternative to foreclosure for owners who are underwater and can no longer afford payments.

Does the lender have to approve a short sale?

Yes. The lender must agree, usually after a hardship letter and documents. If there are multiple liens, each lienholder must approve the offer.

Can I owe money after a short sale?

Possibly. The gap is called a deficiency, and whether the lender can pursue it depends on your loan and the state. Ask an attorney and request any waiver in writing.

Is forgiven mortgage debt taxable in 2026?

Often, yes. One October 2026 guide says the principal residence exclusion expired on December 31, 2025, with limited exceptions for written arrangements made earlier. The insolvency exclusion may apply. Talk to a tax professional.

Will a short sale hurt my credit?

It can lower your score significantly, though usually less than a foreclosure. You may be unable to get a new mortgage for up to two years, according to Credible.

If you are weighing a sale and not sure where you stand, I can pull recent sales, help you estimate net proceeds or shortfall, and connect you with a housing counselor, attorney or tax professional who can advise you. No pressure, just a clear picture before you decide.

This content is provided for informational purposes only and does not constitute legal or financial advice. All real estate services are provided in compliance with Fair Housing laws, RESPA, TCPA, the REALTOR® Code of Ethics, and Ohio Real Estate Commission advertising regulations. Equal Housing Opportunity. Chrisi Hagan, Collins Lassiter Group, Red 1 Realty.