You need to sell, and the numbers do not work. The payoff on the mortgage, plus the cost of selling, comes to more than the house will bring. Can I sell my house for less than I owe? Yes, but only in one of two ways: you bring the difference to the closing yourself, or every lender with a mortgage on the house agrees in writing to accept less than full payoff, which is called a short sale. What you cannot do is close and leave a lien unpaid, because the buyer’s attorney will not record a deed until every mortgage is discharged.
In Massachusetts, a lender can generally pursue the shortfall after a foreclosure for two years, and since 1 January 2026 the federal tax break that used to cover forgiven mortgage debt on a main home has ended for new discharges. Both facts change how this decision should be made in 2026, and both are covered below.
This is general information. For your own situation, talk to a HUD-approved housing counselor, a Massachusetts real estate attorney, and a tax professional before you commit to a route.
First, check whether you are really underwater
Many owners who think they are underwater are working from the wrong number. The balance on your monthly statement is not your payoff. The payoff figure your lender issues includes accrued interest to the payoff date and any fees, and it can be noticeably higher if payments are behind. Ask the lender for a written payoff statement. Our guide to what happens to a mortgage when you sell your house in Massachusetts explains how that figure is used at closing.
Then add every other claim that has to be cleared: a second mortgage or home equity line, unpaid property tax and water or sewer charges, and any judgment liens. Finally, add the cost of selling itself, which on a listed sale typically means commission, the Massachusetts deeds excise, attorney fees and any repairs or credits the buyer negotiates.
Here is how the arithmetic works, using made-up figures purely for illustration.
| Line | Hypothetical amount |
|---|---|
| Realistic sale price on the market | $400,000 |
| Commission at about 5 percent | minus $20,000 |
| Deeds excise, attorney and other closing costs | minus $6,000 |
| Mortgage payoff, including accrued interest | minus $385,000 |
| Unpaid water and sewer balance | minus $1,500 |
| Amount short at closing | minus $12,500 |
In this example the owner owes less than the house is worth but is still short once selling costs are counted. That is common, and it matters, because a gap of $12,500 is a very different problem from a gap of $80,000.
In our experience the biggest closing shock is exactly this structure. Sellers picture the sale price arriving as a check and then discover how much has to be cleared from it first, with property taxes, municipal charges, and water and sewer balances among the items people forget.
If I sell my house for less than I owe, what are my options?
You have four realistic routes: cover the gap yourself, ask the lender for a short sale, hold the house until the numbers change, or hand it back to the lender. They are listed here roughly from the least damaging to the most.
Cover the gap and sell normally
If the shortfall is modest, the cleanest route is usually to bring the difference to closing from savings, a family loan or another asset. The lender is paid in full, your credit is untouched, there is no forgiven debt to report, and the sale proceeds like any other. It hurts, but it is often the cheapest outcome over time.
Ask the lender for a short sale
In a short sale the lender agrees to release its mortgage for less than the full payoff. You still sell the house on the open market, but the lender has to approve the buyer, the price and the settlement figures before closing, and every lienholder has to agree, including a second mortgage or home equity line. Approval takes time and there is no guarantee of it.
Two questions decide whether a short sale actually leaves you better off. The first is whether the lender’s approval letter waives the remaining balance or reserves the right to collect it. Read that letter with an attorney, because a short sale that leaves you owing the difference has not solved the problem. The second is tax, covered below.
Stay, rent it, or wait
If you do not have to move right away, holding the house can let the market or your principal balance close the gap. Renting it can cover the payment while you wait, though it makes you a landlord with Massachusetts obligations. Our comparison of whether to sell or rent your house in Massachusetts walks through what that involves. If the pressure is the payment itself, a loan modification is worth asking about before anything else, and a housing counselor can help you make that request.
Deed in lieu, or letting it go to foreclosure
A deed in lieu means handing the house back to the lender by agreement. Foreclosure means the lender takes it. Either way you lose the house without controlling the sale, and foreclosure carries a specific Massachusetts risk.
Can the lender come after you for the rest?
Often, yes. Massachusetts generally allows a lender to sue for the deficiency, meaning the difference between what you owed and what the foreclosure sale brought. Under chapter 244, section 17A, that action must generally be started within two years of the foreclosure sale. Chapter 244, section 17B adds a condition: before a lender can pursue a deficiency, it must have mailed you a written notice of its intent to foreclose, with a warning of liability for the deficiency, at least 21 days before the sale.
A foreclosure sale price is often lower than an open-market sale would bring, which can make the deficiency larger. That is one reason owners in this position are usually better served by acting before an auction date is set. After a short sale or a deed in lieu, whether a deficiency survives depends on what the written agreement says, which is why the waiver language matters so much.
The 2026 tax problem with forgiven mortgage debt
When a lender forgives part of what you owe, the forgiven amount is generally treated as income, and the lender may send you a Form 1099-C. For years, a federal exclusion for qualified principal residence indebtedness let most homeowners leave that amount out of income. According to the IRS, that exclusion applies only to debt discharged before 1 January 2026, or discharged under an arrangement entered into and evidenced in writing before that date. See the IRS guidance on canceled debt for the current rules.
For a short sale or deed in lieu arranged now, that means the forgiven amount may be taxable unless another exclusion applies. The IRS still lists debt canceled in a bankruptcy case and debt canceled to the extent you were insolvent as exclusions. Whether either applies to you is a question for a tax professional, and it is worth asking before you sign a short sale agreement, not after the 1099-C arrives.
Where a cash sale fits, honestly
A cash sale solves speed, condition and certainty. It usually does not solve being underwater. Our offers typically land at 60 to 70 percent of what the house would be worth after renovation, and closer to 55 to 60 percent on a heavy rehab, because the purchase price has to cover the repairs, holding costs and resale costs. If you are already short on an open-market price, a cash offer will generally make the gap larger, not smaller.
Where it can help is when the gap is small and the house needs work you cannot fund, or when a short sale has been approved and the lender needs a buyer who can close without financing or inspection contingencies. Once title is clear, we usually close in 2 to 4 weeks from a signed agreement.
We also see a lot of owners arrive here after a first plan failed. Roughly 25 to 35 percent of the people who contact us have already tried listing, lost a buyer or had a number change after inspection. If that is you, getting a written payoff, a realistic value and a clear sense of the gap puts you in a much stronger position for whichever route comes next.
If you want a number to compare against, you can ask for a cash offer on your Massachusetts house with no obligation, and use it alongside an agent’s pricing opinion to see where the gap really sits.
Who to call first
Start with a HUD-approved housing counselor, which is free, and you can find a counselor through HUD. They can help you read your options, request a modification and understand a short sale package. Bring in a Massachusetts real estate attorney before signing any short sale approval, deed in lieu or settlement, and a tax professional before any debt is forgiven. The order matters, because the best options tend to disappear once a foreclosure sale is scheduled.
Homeowners We’ve Helped
Boston Investors
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After 94 days on the market, two buyers backed out over the roof and septic. We were tired of dealing with it. The cash offer came without asking us to make the repairs, and we closed in 21 days. Once we looked at the actual numbers, it made much more sense than continuing to list. The whole process was simple and we’re very happy with how it worked out.
