I sold my home a year ago for $50,000 more than my mortgage balance, paid off my loan in full and received an incentive check for paying off my loan early after I told the lender it was on the market. The lender is now saying it was a short sale. How can this be?

By Michael Jensen, Mortgage and Finance Guru

Edited by Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience

Updated October 20, 2020

I have been in the mortgage business for over 40 years and I have not seen a question like yours. Your situation is confusing for several reasons:

1) A short sale only occurs when the sales price of your home is less than your outstanding mortgage balance and you do not pay off the full amount of your outstanding mortgage balance. In your case, you sold your home for significantly greater than your mortgage balance so I do not understand how you could have paid off less than full amount of your outstanding mortgage balance.

2) I have never heard of borrowers receiving an "incentive" to pay off their mortgage by a certain date. Lenders actually want borrowers to have their mortgages outstanding as long as possible (that is how lenders make money) so receiving an incentive check from a lender to pay off your mortgage seems highly unusual.

3) There is no reason for a lender to notify you of a short sale a year after you sold your home and paid off your mortgage. If you were doing a short sale you would have known it at the time. A short sale is negotiated between the borrower and lender and it is a highly documented transaction involving more paperwork and effort than a regular home sale transaction. Short sales also usually take longer to complete than a regular home sale and mortgage pay off.

Given the challenging and unusual issues outlined above, our recommendation is that you contact your state and federal mortgage and real estate authorities and potentially a real estate attorney. At the state level, your best course of action is to contact your state real estate division, housing department or Attorney General's Office for guidance and information.

You may also want to contact the Consumer Financial Protection Bureau (CFPB). The CFPB is a federal government agency that may be able to offer free assistance. Additionally, a real estate attorney may be able to provide additional legal guidance.

Sources

"What is a short sale?"  CFPB.  Consumer Financial Protection Bureau, September 25 2017.  Web.