You cannot sell a house back to the bank in the way you might return something to a store
The bank does not want to own your house. If you stop paying your mortgage, the bank will foreclose and take the house through a legal process — but that is not a sale you control, and it damages your credit. If you want out of your mortgage while you still own the house, you have other routes: selling it on the open market, doing a short sale (where the bank agrees to accept less than you owe), or in some cases a deed in lieu of foreclosure (signing the house directly to the bank to avoid foreclosure). None of these are the same as "selling back," and each one works differently.
The confusion usually comes from the fact that the bank holds the mortgage — the loan secured by the house. But the bank is not the buyer waiting to take it off your hands. Understanding which option fits your situation depends on whether you owe more than the house is worth, how quickly you need to move, and what happens to your credit afterward.
Key Takeaways
- A standard home sale on the open market is the cleanest option if you have equity or owe less than the house is worth, because you keep any profit and your credit stays intact.
- A short sale lets the bank agree to accept less than you owe, but it still damages your credit and requires the bank's written consent before you can sell.
- A deed in lieu of foreclosure transfers the house directly to the bank to avoid foreclosure, but it also harms your credit and may trigger a tax bill on the forgiven debt.
- Foreclosure happens automatically if you stop paying, gives you no control over the process, and causes the most credit damage of all the options.
- The bank will not buy your house from you at any price — it only takes houses through foreclosure or accepts them through a deed in lieu when you cannot pay.
Selling on the open market when you have equity or owe less than the house is worth
If your house is worth more than you owe on the mortgage, a standard sale is straightforward. You list the house with a real estate agent, find a buyer, and at closing the bank gets paid what you owe from the sale proceeds. You keep the rest. Your credit is not affected because you are paying off the loan in full.
The timeline is typically 30 to 90 days from listing to closing, depending on the market and how quickly you find a buyer. You will pay a real estate agent commission (usually 5 to 6 percent of the sale price, split between the buyer's and seller's agents) and closing costs of 1 to 3 percent. The bank has no say in whether the sale happens — you own the house, and you can sell it to anyone willing to buy it.
This option works only if you have positive equity. If you owe $300,000 and the house is worth $350,000, you have $50,000 in equity after agent fees and closing costs. If you owe $300,000 and the house is worth $280,000, you are underwater, and a standard sale will not work because you cannot pay off the loan at closing.
Short sales: when you owe more than the house is worth
A short sale is a sale where the bank agrees in writing to accept less than the full amount you owe on the mortgage. You list the house, find a buyer, and the bank approves the sale price even though it will not cover the full loan balance. The bank forgives the difference — though it may pursue you for the shortfall depending on your state's laws and the type of loan.
The process takes longer than a standard sale because the bank must review and approve the offer before you can move forward. You will need to provide the bank with a financial hardship letter explaining why you cannot pay, proof of income, and sometimes a professional appraisal. The bank wants to know whether you are actually unable to pay or straightforward trying to avoid a loss. Approval can take 30 to 90 days or longer.
A short sale damages your credit — it shows as a settlement or partial payment on your credit report — but less severely than a foreclosure. You will still have difficulty getting a mortgage for two to three years afterward. The forgiven debt may also be treated as taxable income by the IRS, meaning you could owe taxes on the amount the bank did not collect, though some loans and situations are exempt from this rule.
Deed in lieu of foreclosure: transferring the house to the bank directly
A deed in lieu of foreclosure is an agreement where you sign the house directly to the bank instead of waiting for foreclosure. You are essentially saying: I cannot pay, so I am giving you the house to settle the debt. The bank avoids the cost and time of a foreclosure, and you avoid a foreclosure on your credit report.
The catch is that a deed in lieu still damages your credit — it shows as a settlement or loss on your report — and it may not be better than a short sale. The bank must agree to it in writing, and it will only do so if foreclosure would cost more than taking the house. You will need to show financial hardship and prove you cannot pay. The process typically takes 30 to 60 days once the bank agrees.
Like a short sale, the forgiven debt may be taxable income. If you owe $300,000 and the house is worth $250,000, the bank may treat the $50,000 difference as income you received, and you could owe taxes on it. Some loans are exempt, but you should consult a tax professional before signing anything.
Foreclosure: what happens if you stop paying and do nothing
If you stop paying your mortgage and do not pursue a sale, short sale, or deed in lieu, the bank will foreclose. Foreclosure is a legal process where the bank takes the house back without your consent. The timeline varies by state — some states allow judicial foreclosure (through the courts), which takes 6 to 12 months, while others allow non-judicial foreclosure (the lender can sell the house without court involvement), which can happen in 3 to 6 months.
During foreclosure, you have the right to cure the debt (pay what you owe plus fees) up until the sale date in most states. If you do not, the house is sold at a foreclosure auction, usually for less than market value. Any proceeds above what you owe go to you, but in practice the house usually sells for less than the loan balance, and you owe nothing more. However, some states allow deficiency judgments, where the bank can sue you for the difference between the sale price and what you owed.
Foreclosure is the worst option for your credit. It stays on your report for seven years and makes it very difficult to get a mortgage, car loan, or credit card for at least three to five years. You also lose the house and may face eviction if you do not leave after the sale closes.
Comparing your options side by side
| Option | Timeline | Credit Impact | Bank Approval Needed | Tax Consequences |
|---|---|---|---|---|
| Standard sale (with equity) | 30–90 days | None | No | None (you owe capital gains tax only if profit exceeds exemption) |
| Short sale | 60–120 days | Moderate (settlement) | Yes | Forgiven debt may be taxable income |
| Deed in lieu | 30–60 days | Moderate (settlement) | Yes | Forgiven debt may be taxable income |
| Foreclosure | 3–12 months | Severe (foreclosure) | No (happens automatically) | Forgiven debt may be taxable income; deficiency judgment possible in some states |
What to do if you are behind on payments right now
If you have missed one or two payments, contact your lender when ready. Most banks offer loan modification or forbearance — temporary arrangements where you pause or reduce payments for a set period, then resume normal payments or catch up over time. These options do not require you to sell the house and do not damage your credit if you complete the arrangement.
If you know you cannot catch up and want to sell, start with a real estate agent to get a market valuation of your house. If you have equity, list it for sale. If you are underwater, contact your lender's loss mitigation department and ask about short sale or deed in lieu options. Do this before you miss payments if possible — banks are more willing to negotiate when you are current.
If you have already missed multiple payments and foreclosure is underway, you still have time to act in most states. A short sale or deed in lieu can stop foreclosure if the bank approves. Consult a HUD-approved housing counselor (available free through the National Foundation for Credit Counseling or your local housing authority) or a real estate attorney who handles short sales in your state.
Frequently Asked Questions
Can the bank force me to take a short sale instead of letting me sell normally?
No. If you have equity or owe less than the house is worth, you can sell on the open market without the bank's permission. The bank only has approval power over short sales, where the sale price is less than what you owe. A standard sale pays off the loan in full, so the bank has no reason to object.
If I do a deed in lieu, do I still owe the difference between what the house is worth and what I owe?
Not as a debt to the bank — the deed in lieu settles the mortgage. However, the IRS may treat the forgiven amount as taxable income. If you owe $300,000 and the house is worth $250,000, you may owe income tax on the $50,000 difference. Some loans are exempt under the Mortgage Forgiveness Debt Relief Act, but you should consult a tax professional.
How long does a short sale stay on my credit report?
A short sale shows as a settlement or loss on your credit report for seven years, the same as any other negative mark. However, it is less damaging than a foreclosure. Most lenders will consider you for a new mortgage after three years if your credit otherwise improves, though rates may be higher.
What happens if I just walk away from the house?
The bank will foreclose. You will still owe the mortgage debt (and possibly a deficiency judgment in some states), your credit will be severely damaged, and you may face eviction. Walking away does not erase the debt — it only triggers the foreclosure process on the bank's timeline instead of yours.
Can I negotiate with the bank to buy the house back at a discount after foreclosure?
No. Once foreclosure is complete and the house is sold, you have no claim to it. The bank does not resell foreclosed houses back to the original owners. If you want to stay in the house, you must prevent foreclosure by paying the debt, doing a short sale, or arranging a deed in lieu before the foreclosure sale closes.