Work out the real gap before you call anyone
Being underwater is a number, not a feeling, and the number is usually different from what people guess. Add up:
- Payoff, not balance. Ask your servicer for a written payoff good through a future date. It includes interest and fees the monthly statement doesn’t show. The payoff statement guide explains how.
- Other liens. A second mortgage, a home equity line, judgments or tax certificates all get paid at closing too.
- Selling costs. Commission if you list, plus seller costs such as the county conveyance fee, which is $4 per $1,000 in Summit, Stark and Portage counties and $3 per $1,000 in Medina.
- A realistic price. Recent sales of similar houses, adjusted for condition, not the price you paid or what a website estimate says.
If the price minus everything else is still positive, you aren’t underwater for selling purposes. The home equity guide walks through the math.
Four ways to cover a shortfall
Once you know the gap, the options are fairly fixed:
| Option | How it works | Watch for |
|---|---|---|
| Bring cash to closing | You pay the difference so the lender is paid in full | Only works if the gap is small and you have the money |
| Short sale | The lender agrees to release the mortgage for less than the payoff | Lender approval takes time; ask for a written deficiency waiver |
| Deed in lieu | You give the house back to the lender instead of a sale | CFPB says to get any deficiency waiver in writing |
| Keep the house | Loan modification, forbearance or waiting for values to rise | Works if you can afford the payment going forward |
A short sale is the usual route when the gap is large. Expect the lender to ask for a hardship letter, recent pay stubs and bank statements, tax returns, and a signed purchase contract, and expect its own appraisal or broker’s opinion of value. If there’s a second mortgage or home equity line, that lender has to agree too, and it may hold out for a small payment from the first lender’s share. Answer every document request quickly, since a short sale file that goes quiet can stall for weeks. Our short sale guide covers the lender’s approval process, and the deed in lieu guide covers the alternative.
Deficiencies: what Ohio law limits and what it doesn’t
The deficiency is the part of the debt left after the house is sold. Ohio limits how long a lender can collect one after a foreclosure. Under R.C. 2329.08, for a mortgage on a home of no more than two families, a deficiency judgment becomes unenforceable two years after the court confirms the sheriff sale, though collection started within that time can continue.
That rule is about foreclosure sales. In a short sale or deed in lieu, the deficiency is whatever the lender agrees to, so the approval letter should say clearly that the remaining balance is waived or forgiven. The CFPB’s guidance on deeds in lieu says the same: ask the lender to waive any deficiency “in writing.” The deficiency judgment guide covers the rest.
The 2026 tax problem with forgiven mortgage debt
Debt a lender forgives is generally taxable income. For years, a federal exclusion let homeowners leave forgiven debt on their main home off their taxes, up to $750,000. IRS Publication 4681 says that exclusion doesn’t apply to discharges completed, or discharge agreements entered into, after December 31, 2025.
So a short sale or deed in lieu that forgives debt in 2026 may create a tax bill, unless another exception applies, such as being insolvent at the time. CFPB also warns that you may still owe tax after a deed in lieu. Talk to a tax professional before you sign a short sale approval, not after, and check whether Congress has changed the rule since.
Getting help, and when a cash sale fits
A HUD-approved housing counselor can compare these options with you at little or no cost. The CFPB’s lookup finds one by ZIP code, and HUD’s line is (800) 569-4287. If you’re already in foreclosure, see selling a house in foreclosure.
A direct sale fits when the house needs work that would push a listed price down anyway, or when the lender wants a quick, certain buyer for a short sale. If the house is in good shape and the gap is small, listing may close it, and we’ll say so. To see where the number lands, ask for a written offer.
