Sell a house with an underwater mortgage in Colorado Springs, CO: how a short sale works with the lender, Colorado deficiency rules, the VA and FHA programs, and what a cash buyer can and cannot do when you owe more than the house is worth.
Colorado Springs prices rose fast through 2022, then flattened, and owners who bought at the top with a low down payment, or who refinanced and pulled equity, can now owe more than a sale would bring. A 2022 purchase in Stetson Hills or Falcon with a VA loan and no down payment, a few years of a flat market, and a roof that needs replacing after the 2023 hail: the payoff is $460,000 and the house would sell for $440,000 before costs. That is an underwater mortgage, and it changes what any buyer, including a cash buyer, can do.
Colorado Springs Cash Buyers buys houses with underwater loans across Colorado Springs and El Paso County through short sales approved by the lender, and we will tell you up front when the numbers do not support one. This page explains how far underwater is too far, how a short sale runs, what the VA and FHA offer their borrowers, how Colorado treats the shortfall after a sale, and the alternatives that keep the house.
First, find out whether you are actually underwater
Online estimates are rough. Pull your current payoff from the servicer, then compare it with what the house would net in a sale: the price minus the costs the seller carries. In a listing those include a commission of roughly six percent, seller concessions and repairs the buyer's inspector demands. In a sale to us, there is no commission and we pay the customary closing costs, so the price is closer to the net. Some owners who believe they are underwater by a listing's math are at or above water by a cash sale's, and a written offer within 24 hours of our visit settles the question.
How a short sale works in Colorado
A short sale is a sale for less than the loan balance with the lender's written agreement to release its deed of trust anyway. You submit a hardship package to the servicer: a letter, income documents, bank statements, the purchase contract and an estimated settlement statement. The servicer orders its own valuation, reviews the file, and approves, counters or denies, typically over six to twelve weeks. If there is a second mortgage, it must also approve, usually in exchange for a small payment from the first lender. A short sale reports on your credit as settled for less than owed and affects mortgage eligibility for a shorter period than a foreclosure. We make the offer, supply the proof of funds and wait through the review without renegotiating.
The deficiency, and getting it waived
Colorado permits a lender to pursue the shortfall after a foreclosure, though you can challenge a deficiency if the lender's bid at the Public Trustee sale was below fair market value. In a short sale the deficiency is a matter of negotiation: the approval letter should state in writing that the lender waives its right to collect the remaining balance. We treat that line as a condition of our offer, because a short sale that leaves you owing $30,000 is not a solution. Forgiven mortgage debt can have tax consequences; a tax professional should review your situation before you accept.
VA and FHA borrowers
Many Colorado Springs loans are VA or FHA. The VA offers a compromise sale program in which the VA pays the lender the shortfall under certain conditions, and the VA Regional Loan Center can intervene when a servicer stalls; a compromise sale generally affects your future entitlement until the amount is repaid. FHA has a pre-foreclosure sale program with its own approval path and a relocation payment in some cases. Both programs have paperwork and timelines, and both are faster when the application is complete the first time. If you received PCS orders and the house is underwater, start the conversation with the servicer the week the orders arrive.
Alternatives that keep the house
If you can afford the payment, being underwater is a paper problem that time usually fixes, and a modification or a VA streamline refinance can lower the payment while you wait. Renting the house to cover the mortgage is common for owners leaving for a new duty station, though Colorado's for-cause eviction rules and the practicalities of long-distance landlording should be weighed. A sale makes sense when you cannot carry the payment, when a foreclosure is otherwise coming, or when the house has problems that will not improve with time.
What we will and will not do
We will give you a written offer, help assemble the short sale package, communicate with the servicer's negotiator, and hold our price through the review. We will not promise the lender's approval, pay you cash outside the closing, or ask you to sign the deed over before the lender has released the loan. If the gap is small enough that bringing cash to closing is realistic, we will say so, because that is sometimes the cleanest route. Tell us the address, the payoff and the servicer, and we will start from the real numbers.
Selling to us vs. a traditional listing in Colorado Springs, CO
| Comparison | Traditional agent | For sale by owner | Colorado Springs Cash Buyers |
|---|---|---|---|
| Cash offer | Rarely | Rarely | Yes |
| Sell as-is | Repairs expected | Repairs expected | Yes |
| Time to a contract | roughly two months in Colorado Springs now | Often longer | 24 hours after the visit |
| Agent commission | About 6% | Buyer's agent usually paid | None |
| Closing costs | Paid by seller | Paid by seller | Customary costs paid by us |
| Showings | Yes | Yes | One visit |
| Financing fall-through | Possible | Possible | None, we fund it |
| Price cut after inspection | Common | Common | No inspection period |
| Closing date | Lender's schedule | Buyer's schedule | Yours |
We buy houses in Colorado Springs for any reason, any condition, or any challenge
Every link below is a page written for that situation in Colorado Springs and El Paso County.