Underwater and divorcing

Short sale and divorce in Colorado

The house is worth less than the loan, neither of you can carry it alone, and the divorce needs it gone. A short sale is a sale the lender agrees to accept for less than it is owed. Here is how one runs when two spouses, two attorneys and a court are also involved.

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The definition

Sold short, not sold fast

The lender accepts the sale proceeds and releases its lien for less than the balance. It approves the price, the costs and the buyer. Three to six months is normal.

Both spouses

Both sign everything

Authorization, hardship letter, financials, listing, contract, approval. One refusing spouse stops it; the court can order cooperation.

The deficiency

Get the waiver in writing

Colorado lenders can pursue the unpaid balance after a short sale unless the approval letter waives it. Read that line before you sign.

The tax

Forgiven debt can be income

A 1099-C may follow. The federal principal-residence exclusion no longer applies to discharges after 2025; insolvency may. Ask a CPA.

The short answer

A short sale in a Colorado divorce works when three things line up: the house is genuinely underwater after selling costs, both spouses will sign, and the lender gets a complete hardship package. The divorce itself is a recognized hardship. Expect three to six months, expect the lender to set the price, and get the deficiency waiver in writing or do not close.

When a short sale is the right tool in a divorce

The payoff plus about 7 percent in selling costs is more than the house will sell for. Get the number in writing first.
Neither spouse can carry the payment alone, and neither can qualify to refinance.
A foreclosure has started or will; the Public Trustee sale date is far enough out to market the home.
Neither of you wants to hold the house as a rental tied to your ex for years.

How it runs with a divorce in the middle

The injunctionOnce the case is filed and served, neither spouse can sell without the other’s written consent or a court order. A short sale needs a written stipulation or an order naming the broker and the process, like any divorce sale.

The hardship packageHardship letter (the divorce, the income change), financial worksheets, pay stubs, bank statements, tax returns, the listing agreement and the contract. Both spouses provide their own financials; the lender evaluates both.

PricingWe list at a defensible market price and the lender orders its own valuation. The lender, not the spouses, decides what net it will accept.

The buyerMust be told approval is required and can take months. Investors and patient owner-occupants are the usual buyers.

The approval letterStates the accepted price, the allowed costs, the closing deadline, and whether the deficiency is waived. Both attorneys should read it. The decree should say where any relocation assistance goes.

Junior liens and HOAA HELOC, a judgment, an HOA balance or a tax lien each needs its own release. They are the usual delay.

CreditLate payments and the settled account are reported. Future mortgage eligibility depends on the program, the cause and re-established credit. A lender maps it before you close.

The divorce-specific traps

One spouse stops paying to force it. A missed payment lands on both credit reports and does not speed the approval. The injunction and the temporary orders decide who pays; the lender does not care.
One spouse will not sign. The court can order the sale and, if needed, authorize a signature under C.R.C.P. 70. The path through each refusal.
The deficiency is split in the decree but not waived by the lender. The lender can collect from either name on the note regardless of the decree. Waiver in writing, or the decree must address who pays.
The 1099-C arrives in one spouse’s name. Agree in the decree how forgiven-debt income is reported, and talk to a CPA about insolvency.

Questions people ask

Do we have to be late on the mortgage to short sell?

Not always. Some servicers evaluate an imminent, documented default; others require delinquency. Do not miss payments on anyone’s advice without asking the servicer and a HUD-approved counselor first (Colorado Foreclosure Hotline 1-877-601-4673 (HOPE), free HUD-approved counseling).

Can one spouse buy the house in a short sale?

No. Lenders prohibit sales to related parties, including a spouse, in almost every program.

Who pays the commission?

The lender allows it out of the proceeds in the approval. You do not bring money to closing for it.

Will the short sale stop the foreclosure?

Only if the servicer confirms a postponement in writing. A contract in review does not automatically stop the Public Trustee clock. Foreclosure and divorce.

Is a short sale better than a foreclosure for my credit?

Usually less damaging and shorter to recover from, and it avoids the public sale. It is still a settled-for-less account.

Hard times, handled quietly

We have sold underwater houses, negotiated short sales and stopped foreclosure clocks for divorcing owners. Quietly.

A divorce with no equity, two incomes that just became one, and a lender who does not care about the decree is the file we see most in a down year. The Kenna divorce real estate team, led by Damon L. Chavez, Certified Real Estate Divorce Specialist, runs the numbers first and tells you the truth: sell, short sale, hold, or fight the foreclosure.

Your information stays with us. We will not contact you without your permission, and nothing here is logged to an account.

A written net sheet with the house sold, short-sold and kept

The Colorado foreclosure timeline against your court dates

A lender who will tell you the truth about a refinance on one income

The hotline, legal aid and fee-waiver numbers, free

Talk to the team, free

Where to go next

Plain-language education, not advice. Divorce Decisions is published by The Kenna Real Estate Group at Keller Williams DTC, a real estate team. Nothing here is legal, tax, lending or financial advice, and reading it does not create any professional relationship. Colorado law and lender rules change; confirm anything that matters to your case with a licensed Colorado attorney, a tax professional, and your lender. See our full disclaimer.

Call your Colorado divorce agent

Questions about the house, the deed or the decree?

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Call today 303-955-4220 Download the free divorce-home guide

Ask about the house, quietly

Tell us the balance, what you think it is worth, and whether anyone has missed a payment. We will send both spouses the same net sheet: sold, short-sold and kept. Nobody is contacted without permission.

Call or text 303-955-4220

A live person answers. Not a robot, not a phone tree. Prefer email? homes@kennarealestate.com