How Does a Short Sale Work in New York?

The short answer: a short sale is a sale of your home for less than you owe on the mortgage, with your lender’s agreement. You sell to a buyer at market value, and the lender agrees to take the proceeds even though they do not cover the loan. Nothing about it is automatic: the lender has to approve the buyer’s contract, and any second mortgage or other lien holder has to agree too.

How a short sale works, step by step

1. Talk to your servicer early. Ask what options it offers, including ones that let you keep the home. The CFPB advises contacting your lender first, and the New York courts note that a workable deal gets harder to negotiate as missed payments add up.
2. The servicer’s short-sale package. Servicers usually ask for a hardship letter explaining why you cannot keep paying, plus financial records such as pay stubs, bank statements and tax returns. Each servicer has its own forms.
3. List the home and accept an offer, subject to approval. The contract says the sale depends on the lender’s approval, so the buyer knows the price is not final until the lender agrees.
4. The lender reviews. It looks at the contract, your financial package and its own view of the home’s value. Any second mortgage or home-equity lender has to agree as well, as the DFS notes for junior liens.
5. Read the approval letter closely. Check whether it waives the remaining balance, which the CFPB advises getting in writing. Your attorney should review it before you sign.
6. Close by the lender’s deadline. Approval letters usually set terms and a date for the closing. The lender is paid the agreed amount from the proceeds at the closing.

How long does it take? Longer than a regular sale, because the lender’s review comes on top of the usual steps, and each lender works at its own pace. No official source publishes a standard timeline, so we do not print one.

How foreclosure works in New York

New York foreclosure is a lawsuit, decided in State Supreme Court. Per the New York courts' CourtHelp guide:

1. 90-day notice. Before starting a case, the lender must mail you a 90 Day Pre-Foreclosure Notice by regular and certified mail. It lists at least five nonprofit housing counseling agencies near you.
2. Summons and complaint. The lender starts the case and files a notice that the property is involved in a lawsuit. You do not have to move out: only a judge can order that.
3. Your Answer. You have 20 or 30 days to answer, depending on how the papers reached you: 20 days if handed to you in person, 30 days otherwise. If you do not answer, the lender can get a default judgment.
4. Settlement conference. If the case is about the home you live in, with no more than four units, the court holds a settlement conference within 60 days after the lender files proof of service (CPLR 3408). Both sides must negotiate in good faith, and the options on the table include a loan modification, a short sale and a deed in lieu. Going to the conference does not replace your Answer. If you attend the first one without having answered, you get an extra 30 days.
5. Judgment and sale. If the case is not resolved, the lender can seek a judgment of foreclosure and sale. A court-appointed referee then sells the home at a courthouse auction, advertised in a newspaper at least 30 days ahead. You can stop the sale by paying what is owed up until the auction.
6. Deficiency. If the auction does not cover the debt, the lender can ask the court for a deficiency judgment within 90 days after the deed goes to the buyer. The law limits it to the debt minus the higher of the auction price or the home’s fair market value, as the court decides it.

The court system’s own guidance says the process takes about a year from when the lender starts the case to the sale of the home. Every case is different.

Short sale vs foreclosure vs deed in lieu

Sources: NY courts, Avoiding Foreclosure, NYS DFS, CFPB. A short sale or deed in lieu can be agreed during a foreclosure case too, and either may be raised at the settlement conference. Taxes and credit apply to all three: see below.

Options that keep the home

A short sale gives up the home. Before you decide, ask your servicer about the options the New York courts and the DFS describe for keeping it:

• Reinstatement: paying the past-due amount, plus any late fees, by a set date.
• Repayment plan: the missed payments are spread over future monthly payments.
• Forbearance: payments are reduced or paused for a period, then the missed amount is added back.
• Loan modification: the lender changes the loan’s terms, such as the rate or the length, so the payment is affordable.
• Refinancing with another lender.

What to ask, and who to ask

Your lender or servicer

• Which options do you offer for my loan, including ones that keep the home?
• What does your short-sale package require, and who is my contact?
• If you approve a short sale, will the approval letter waive the remaining balance?
• Is there a second mortgage or home-equity line that also has to agree?

An attorney (the DFS says to consult one if you are in a foreclosure case)

• What are my deadlines in the foreclosure case, and have I met them?
• Does this approval letter or deed-in-lieu agreement release me from the whole debt?
• What should I sign, and what should I not sign?

A HUD-approved housing counselor

• Which of these options fits my budget, and what does each mean for my credit?
• Can you help me prepare for the settlement conference?

A tax professional: will any forgiven balance be treated as income for me? The CFPB notes that it can bring a tax liability.

Free help in New York, and a warning

• Homeowner Protection Program (HOPP): connects New York homeowners with housing counselors and legal services at no cost. Hotline (855) 466-3456, as listed by the DFS.
• Find a Housing Counselor: the CFPB’s search of HUD’s official list of approved counselors, by ZIP code.
• Beware upfront fees. The DFS warns against anyone who asks for an upfront fee to get you a loan modification, and says New York law prohibits such fees in most cases. The courts warn about loan-modification scammers too.

Where we fit

We represent homeowners selling in Nassau, Suffolk, Queens and Brooklyn, including short sales. As your real estate agent we price the home from recent comparable sales, market it, handle the offers and supply the sale documents and market information the lender asks for. Your own attorney handles the legal side, including the approval letter. We cannot promise a lender will approve a sale, and selling does not by itself stop a foreclosure, so talk to us early, alongside your attorney and a counselor.

Discuss Your Home-Sale Options

If your home will sell for more than you owe, it is a regular sale: see selling a house with a mortgage and what sellers pay at closing.

Common questions

What is a short sale in real estate?

A short sale is a sale of your home for less than what you owe on your mortgage, with your lender's agreement. The buyer pays market value, and the lender agrees to accept the sale proceeds even though they fall short of the loan balance. It is one of the options lenders call loss mitigation.

Does a short sale mean I no longer owe the rest of the mortgage?

Not by itself. The lender agreeing to accept less at closing is not the same as releasing you from the shortfall, called the deficiency. New York's Department of Financial Services says lenders do not usually pursue it after a short sale, but cannot be prevented from doing so. The Consumer Financial Protection Bureau advises getting a waiver of the deficiency in writing before you close. Have your attorney review the lender's approval letter before you sign.

What is the difference between a short sale and a foreclosure?

In a short sale you sell the home yourself, to a buyer at market value, with the lender's approval. In a foreclosure the lender sues in court, and if it wins, the home is sold at a courthouse auction by a court-appointed referee. After a foreclosure sale the lender can ask the court for a deficiency judgment for what is still owed, limited by law to the debt minus the higher of the sale price or the home's fair market value.

What is a deed in lieu of foreclosure?

You voluntarily hand the deed to your home to the lender instead of going through foreclosure. The lender has to agree. The New York courts' guidance says the agreement should state that it is in full satisfaction of your debt, and the Consumer Financial Protection Bureau says to make sure it covers the entire amount you still owe and to get any waiver in writing.

Does listing my house for sale stop a foreclosure?

No. Listing the home or accepting an offer does not pause a foreclosure case or its deadlines. The case continues unless the lender agrees to something different or the court orders it. If you have been served with foreclosure papers, speak with an attorney about your deadlines now, whatever you decide about selling.

How long does foreclosure take in New York?

New York foreclosures go through the court. The state court system's own guidance says the process takes about a year from when the lender starts the case to the sale of the home. Every case is different, and the timeline in yours depends on what happens in it.

What is the foreclosure settlement conference in New York?

If the foreclosure is about the home you live in, with no more than four units, the court holds a settlement conference within 60 days after the lender files proof that you were served (CPLR 3408). You, the lender and someone from the court discuss options such as a loan modification, a short sale or a deed in lieu. Going to the conference does not replace filing your Answer to the lawsuit.

Will a short sale or forgiven debt affect my taxes or credit?

It can. The Consumer Financial Protection Bureau notes that a forgiven balance may still bring a tax liability. How a short sale, deed in lieu or foreclosure is reported, and what it means for your credit, depends on your own situation. Ask a tax professional about taxes and a HUD-approved housing counselor about credit before you decide.

Where can I get free help in New York?

New York's Homeowner Protection Program connects homeowners with housing counselors and legal services at no cost; the Department of Financial Services lists its hotline as (855) 466-3456. The Consumer Financial Protection Bureau's Find a Housing Counselor tool searches HUD's official list of approved counselors. Be wary of anyone who asks for an upfront fee to save your home: the Department of Financial Services says New York law prohibits such fees for loan modifications in most cases.

Sources (checked 2026-10-24)

• Consumer Financial Protection Bureau, What is a short sale? and What is a deed-in-lieu of foreclosure?
• NYS Department of Financial Services, Know Your Options in Foreclosure and Homeowner and Tenant Resources
• New York State Courts, CourtHelp: Foreclosures, Foreclosure Case Basics, 90 Day Pre-Foreclosure Notice, Answering a Foreclosure Case, Foreclosure Settlement Conferences, Foreclosure Judgments, Deficiency Judgments After Foreclosure, Avoiding Foreclosure (Loss Mitigation)
• New York CPLR 3408 (mandatory settlement conference in residential foreclosure actions)
• CFPB, Find a Housing Counselor (HUD-approved agencies); NY Homeowner Protection Program

Joseph DeVito is a New York Licensed Associate Real Estate Broker and a New York attorney. He does not act as both broker and attorney on the same transaction: here he acts as a real estate broker only, and he is not your attorney. Real estate services provided through Keller Williams Realty Greater Nassau are not legal representation. Everything on this site is general information for educational purposes only. It is not legal advice, it creates no attorney-client relationship, and it should not be relied on as legal advice — for advice about your own situation, consult your own attorney.

This page is general information, not legal, tax, credit or lending advice. Whether a lender approves a short sale, what it releases, and your deadlines in a foreclosure case depend on your own loans and case, so confirm them with your attorney. We do not recommend lenders, and we cannot promise a lender’s approval or any outcome.