Short sale pros and cons for Utah homeowners

Key takeaway

The main pros of a short sale are avoiding a trustee sale, a shorter wait to buy again than after foreclosure (4 years versus 7 with Fannie Mae), and possible relocation assistance of up to $7,500 on Fannie Mae and Freddie Mac loans. The main cons are that the lender must approve, your credit still shows a settled account for seven years, you keep no equity, and forgiven debt may be taxable. In Utah, a lender's suit for the shortfall is barred unless filed within three months after the reconveyance is recorded (Utah Code 78B-2-313).

At a glance

Relocation assistance, Fannie Mae and Freddie Mac	Up to $7,500, with conditions
Relocation assistance, FHA	Up to $3,000 (ML 2025-12)
Utah short sale deficiency deadline	3 months after the reconveyance is recorded (78B-2-313)
Credit reporting	Settled account for seven years (Experian)

What are the pros and cons of a short sale?

A short sale lets you sell a home for less than the loan balance with the lender's approval, so the lender takes the loss instead of foreclosing. The definition and the reasons lenders agree are covered in what a short sale is. For a seller, the case for it rests on what it avoids: a trustee sale, a longer wait to buy again and, in Utah, an open-ended risk of being sued for the shortfall.

It is not the right answer for every owner. If your home is worth more than you owe, a regular sale usually leaves you better off, and the ways to sell a Herriman home compare a listed sale, a short sale and a cash sale.

Pros of a short sale

You avoid the trustee sale

A Utah trustee sale is a public auction with no right of redemption afterward (Utah Code 57-1-28). A short sale closes before that date, on terms you and a buyer agree to.

Utah limits the deficiency window

After a short sale of a single-family home, a lender's suit to recover the shortfall is barred unless filed within three months after the release or reconveyance is recorded (78B-2-313), unless there was fraud or you signed an agreement to pay part of it. Fannie Mae and FHA short sales go further and release or forgive the deficiency.

You may receive relocation money

Fannie Mae, Freddie Mac and FHA each pay relocation help to qualifying owner-occupants, covered in the table below.

A shorter wait to buy again

Fannie Mae waits 4 years after a short sale versus 7 after a foreclosure. FHA generally waits 3 years, and not at all for a borrower who was current on every mortgage and installment payment for the 12 months before the short sale.

Cons of a short sale

The lender must approve, and that takes time

The lender, not you, decides the price it will accept, and the foreclosure timeline keeps running while it reviews. FHA, for example, requires the sale to net at least 84% to 88% of the as-is appraised value depending on how long the home has been marketed. The steps are in the short sale process and timeline.

Your credit still takes a hit

Experian says a short sale shows as a settled account for seven years, though it is less harmful than a foreclosure when there were no missed payments.

Forgiven debt may be taxable

The IRS treats canceled debt as generally taxable unless an exclusion applies. The federal main-home exclusion covers only debt discharged before January 1, 2026, or under a written arrangement made before then. See how forgiven mortgage debt is taxed.

No equity and liens to clear

The proceeds go to the lenders and closing costs. Second mortgages and HOA balances must be settled too: Fannie Mae and Freddie Mac cap payments to second-lien holders at $6,000 in total, and a Utah HOA holds a lien for unpaid assessments and collection costs (57-8a-301).

Short sale relocation assistance by loan type

Relocation assistance is money the loan's investor pays a seller who lives in the home and completes a short sale, usually from the sale proceeds and itemized on the Closing Disclosure. Amounts as of October 2026:

Loan	Amount	Main conditions
Fannie Mae	$7,500	Principal residence; none if you are required to contribute cash
Freddie Mac	Up to $7,500	Primary residence; reduced by other relocation help; not available with cash reserves over $10,000 or a housing ratio of 40% or less
FHA	Up to $3,000	Owner-occupant acting in good faith; can also go toward liens or sale costs (ML 2025-12)
VA, USDA, private lenders	Ask your servicer	Terms vary by program and lender

The federal HAFA short sale incentive is gone: Making Home Affordable programs stopped taking applications on December 30, 2016. A planned FHA increase to $7,500 was cancelled in 2025. Freddie Mac allows servicers to add their own incentive, so ask. No payment is guaranteed, and an investment property does not qualify with Freddie Mac.

Example: a Herriman home worth $601,499

Zillow's typical home value for Herriman city was $601,499 in August 2026. In this illustration, not a real sale, an owner with a Freddie Mac loan owes $640,000 and has fallen behind after a job loss.

The notice of default was recorded after the loan passed 120 days delinquent, as federal rules require (12 CFR 1024.41), and Utah law gives the owner three months from recording to reinstate (57-1-31) before the trustee can give notice of sale (57-1-24). Catching up is not possible, so the owner sends a complete application more than 37 days before any sale date and lists the home.

A buyer pays $601,499, about $38,501 less than the balance before selling costs. If approved, the owner can receive up to $7,500 in relocation help if Freddie Mac's conditions are met, and the lender's window to sue for the shortfall closes three months after the reconveyance is recorded. In a foreclosure instead, the lender could sue within three months of the auction for the debt minus the fair market value (57-1-32), and there would be no relocation payment. Where the loan already sits above value, see owing more than the home is worth.

Is a short sale right for you?

It tends to fit when the home is worth less than the loan, a hardship means you cannot catch up, and there is time to close before the trustee sale. If you can catch up, the reinstatement and loan modification options in ways to stop foreclosure in Utah keep the home. If no buyer appears, a deed in lieu may be next.

Get any approval letter in writing and check whether it releases the deficiency or asks you to sign a note for part of it, since a signed deficiency agreement falls outside Utah's three-month bar. Ask a CPA about any forgiven balance, and have a Utah attorney or HUD-approved housing counselor review the terms before you sign.

Frequently asked questions

What is the downside of a short sale?

You keep no equity, the lender has to approve the price and timing, and your credit shows a settled account for seven years, according to Experian. Any forgiven balance may be taxable, since the federal main-home exclusion only covers debt discharged before January 1, 2026, or under a written arrangement made before then. Second liens and HOA balances must also be cleared.

Do you have to pay back a short sale?

Not if the lender releases the deficiency. Fannie Mae requires the servicer to release it, Freddie Mac says it will not pursue a good-faith borrower, and FHA forgives it. In Utah, any deficiency suit must be filed within three months after the reconveyance is recorded (78B-2-313), unless there was fraud or you signed an agreement to pay part of it.

Who loses money on a short sale?

Mainly the lender, which accepts less than the loan balance. Second-lien holders often take a large loss as well, since Fannie Mae and Freddie Mac cap their combined payment at $6,000. The seller loses any equity they put in and may owe tax on forgiven debt, but usually avoids a foreclosure and the longer waiting period to buy again.

Does the seller get any money in a short sale?

Usually not from the price, because the proceeds go to lienholders and closing costs. The money a seller may receive is relocation assistance: up to $7,500 on Fannie Mae and Freddie Mac loans and up to $3,000 on FHA loans, when the conditions are met. Ask your servicer which amount, if any, applies to your loan.

How much less should you offer on a short sale?

The lender sets the floor, usually based on an appraisal or broker opinion of value. FHA requires a short sale to net at least 88%, 86% or 84% of the as-is appraised value, depending on how long the home has been marketed. A much lower offer is likely to be rejected, and the buyer side is explained on the page about buying a short sale.

Can a buyer back out of a short sale?

That depends on the purchase contract and its contingencies, including terms tied to lender approval. Utah's list of state-approved real estate forms does not include a short sale addendum, so the contract language matters. Sellers should read those terms with their agent before accepting an offer, since a buyer leaving can cost time before the trustee sale.