7 Lessons I Learned From My Short Sale

Hello! Today’s post is from Alaya and what she learned from experiencing a short sale. Alaya is the blogger behind Hope+Cents. After dumping her own debt, she has become passionate about helping others do the same and shares tips, encouragement, and hope for those looking to take control of their finances. Over nine million Americans lost…

Michelle Schroeder-Gardner

Last Updated: May 27, 2023

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Hello! Today’s post is from Alaya and what she learned from experiencing a short saleAlaya is the blogger behind Hope+Cents. After dumping her own debt, she has become passionate about helping others do the same and shares tips, encouragement, and hope for those looking to take control of their finances.

Over nine million Americans lost their homes between 2006 to 2014 to a short sale or foreclosure. Here's 7 lessons I learned from my own short sale.Over nine million Americans lost their homes between 2006 and 2014 to a short sale or foreclosure during and after the housing crisis, according to the Wall Street Journal. I have the dubious honor of being a part of that group.

My family and I purchased a home in 2006 at the height of the housing bubble. In 2012, as a result of a job loss that led to employment in a new state, we needed to sell our home. Because we owed more money on our mortgage than our home was worth, we chose to do a short sale.

Losing or giving up your home is a tough pill to swallow. Home ownership is after all “the American Dream,” and when it doesn’t go quite as planned you can kind of feel like you failed. When it comes to dealing with our mistakes and failures, we have two choices: we can wallow in them, or we can learn from them. I have chosen to learn from the mistakes that led to my short sale (after maybe just a little wallowing).

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These lessons can be applied to making any significant financial decision. Here are seven lessons I learned from my short sale.

1. Do Not Allow Social Pressure Guide Your Financial Decisions

I should never have bought my house in the first place. We did not purchase our home after months or years of patiently saving up and scraping together a down payment. Rather, we had no money to put down and were saddled with consumer debt.

Despite the fact that we were financially underprepared for homeownership, we pursued it anyway because “everyone” we rubbed elbows with at the time owned their homes. I distinctly remember driving around our suburban town pining after life in a house. I mean seriously, life had to be better in a two-story colonial, right? We allowed our financial decisions to be dictated by what appeared to be the social norm.

If you find yourself considering financial decisions based on what you think you should be doing or based on what others are saying you should be doing, recognize that as social pressure. The only decisions you should make are ones that are right for you and your financial situation.

2. Do Not Make Financial Decisions You Do Not Understand

When I was going through the process of looking for a home, I knew and understood exactly two things about buying and paying for a house: One, I wanted a house, and two, I needed a mortgage to get one. That’s where my understanding ended.

Without realizing it, I was relying on my real estate agent, my mortgage broker, and everyone else in the process to point me towards decisions that would benefit me. Well, all those people like to eat, and they like to pay their own mortgages, so at the end of the day, they were steering me towards decisions that would benefit them.

When the terms of my mortgage were presented to me, I didn’t understand them. But that didn’t matter because I was getting a house. I signed on the dotted line—over and over again.

In hindsight, I should have educated myself on the terms of the mortgage. Perhaps a full understanding would have led me down a different path.

If you do not understand the details of your financial decisions, don’t make them until you do. It’s okay if you don’t understand something initially. It’s not okay to move forward and make a major financial decision in ignorance.

3. If Your Financing is “Creative” That’s a Sign You Can’t Afford It

The financing for my home was what I like to call a variety pack of mortgage terms. You name a creative (a.k.a. bad) mortgage term, we had it.

A first and second mortgage, a HELOC (home equity line of credit), adjustable rate, interest only…the only thing missing was a balloon payment. Oh wait, somewhere in the six years we were in the house we did a loan modification, and the new terms included—you guessed it—a balloon payment.

All of that finagling and forcing to get us into a mortgage was a sign that we could not afford it. I remember my mortgage broker telling me all I had to do was, “make payments on time for two years and then refinance.” Knowing what we know now about what happened to the housing market between 2006 and 2012, we can all let out a big laugh (or cry) at that suggestion.

I might be stepping on toes here, but if the only way you can afford something is to get creative in your financing (à la borrower assistance programs, little-to-no-money down programs, extended payment terms, or by forcing it in some other way) that is a huge warning sign that you cannot afford what you are pursuing. Please heed the invisible caution sign.

4. You Know That Voice You Hear, Telling You Something’s Not Right? Listen to It.

Looking back at the process of purchasing my home, deep down I knew I couldn’t afford it. I mean our financing was so creative it actually could have been considered art.

I had misgivings both during the process of purchasing the home and years into the mortgage, but because we’re masters of telling ourselves what we want to hear, I silenced that little whisper and told myself things were fine. If the banks were lending us the money, then we were good, right? I wanted that house, and I wanted it badly.

The fact that my mortgage broker talked to me about a refinance before I even closed on the mortgage wasn’t a whisper—it was a loud siren going off in my ear. I managed to silence even that.

I should have paid attention to the inkling that things weren’t right. I should have listened to that voice. It was the voice of reason. When you hear it, listen to it.

5. Be Aware of What You Are Sacrificing

For the six years we were in the house, we never missed a payment before entering the short sale process. It was important for us (as it should have been) to pay our mortgage and to pay it on time.

This meant we were making those payments—which at their highest represented as much as 50% of our take home pay—at the expense of other things. Things like college funding, retirement, maintenance of the house, and life. I think if we knew what owning that home at that time would mean for us in the long term we may have made different choices. Maybe not—we wanted what we wanted, and we wanted it NOW!

Count the costs of your financial decisions carefully, and be aware of what you may be sacrificing down the road.

6. Accept Responsibility and Own Your Financial Mistakes

I do not blame the economy for the loss of my home. The responsibility lies with me and the choices I made. Everyone’s story is different, and I cannot speak for the millions of other homeowners who lost their homes. In my case, though, I don’t view myself as a victim of the economy, but rather a victim of my poor choices.

Four years into owning the home and before the job loss, we woke up the financial mess we were in and went on a journey to eliminate the $74,000 of consumer debt that we had. That was an amazing accomplishment for us. Short selling our home was not how we envisioned becoming 100% debt-free, but it provided us a path to exit a situation we should never have entered.

I’m not thrilled that I went through a short sale, but I have stopped being embarrassed by it. I made a mistake. We all have. Owning the role you play in your mistakes allows you to learn from them.

7. Pursue Your Financial Dream Your Way

Currently, I am renting a house while I wait to pursue homeownership again along with the 2 million other boomerang buyers estimated to reenter the housing market over the next few years.

I am often asked when I am going to buy a house. Those questions as well as the comments that I’m “throwing my money away on rent” put me right back where I used to be in regards to experiencing social pressure. I have to remind myself that I’m pursuing my dream my way and in my timing.

Thankfully, I am better equipped to resist that pressure, although sometimes I feel like the married couple without kids who is always asked when they’re going to have children. (If you’re a married couple with no kids AND you rent, well God bless you. I feel your pain.)

While I like the idea of owning a house again, I am also inspired by the countless stories of people who have chosen to challenge our culture’s picture of traditional homeownership or are forgoing it altogether. Owning a home may be considered the American Dream, but if that’s not your dream, that’s okay.

Whatever financial goals and dreams you have, pursue them boldly, in your way, and in your timing, even if they don’t line up with what everyone else thinks you should be going after.

My Short Sale Came With a Bonus Lesson

Woven through each of these lessons is another one: patience. Impatience led me to purchase a home I could not afford and had no business buying. And losing it taught me patience. Years after signing those final papers, the lessons in patience still continue, and I know that I will be able to apply them to my next home-buying experience.

I’m a big believer that our mistakes and failures are not made in vain. As Henry Ford put it, “Failure is only the opportunity to begin again, only this time more wisely.”

I look forward to beginning again.

Did you experience a short sale, foreclosure, or other financial loss? What have you learned?


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Michelle Schroeder-Gardner

Author: Michelle Schroeder-Gardner

Hey! I’m Michelle Schroeder-Gardner and I am the founder of Making Sense of Cents. I’m passionate about all things personal finance, side hustles, making extra money, and online businesses. I have been featured in major publications such as Forbes, CNBC, Time, and Business Insider. Learn more here.

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  1. Erica Holland

    This is such an important and impactful post. Thank you for all of the great insight and advice, Alaya!

    1. Thanks so much, Erica! πŸ™‚

  2. Everyone makes mistakes.. you made an expensive one and you’re dealing with it. Good for you and I’m glad you wrote about the process that got you into it. I agree that many people ignore those big warning signs that they can’t afford a home. Hopefully your post and others like it will encourage people to step back and decide whether buying a home is really the right choice for them at this time.

    1. Thanks, Steve. Hindsight is 20/20. If I could go back and do it all over again, I would definitely heed the warnings. As painful as the experience was, it has served as a meaningful learning opportunity for me, and as you said, for others as well!

  3. This is a great post. Thank you for sharing your experience. For any large purchase if it doesn’t feel right you should press pause. The worst thing you can do is get saddled with something you can’t afford.

    1. Thank you, Leah. Yes, it’s hard to admit when something doesn’t feel right, especially when you want it badly, but it will save you heartache in the long run!

  4. We had a very similar experience as first time home buyers right out of college in 2006 (gah-that year was the worst for home buying!!!). My husband hadn’t even started his job yet and only had a letter to give the mortgage broker that he would be starting in a few months and I was working part-time. However, we were approved for a loan with no issues whatsoever. I think we may have paid 3.5% down, but I’m not positive it was even that much.
    We were fortunate that our circumstances allowed us to avoid short sale or foreclosure and we were able to actually take advantage of the low housing market and buy another home during this time. Unfortunately, even after 11 years that home has not even almost reached the price we paid for it and we’ve taken a loss as “accidental landlords” for most of those years.
    I am so excited to hear the voices such as yours out there that tell people to rethink the prevailing thought in our society that everyone should buy a house and renting is wasting money. Home buying has a lot of costs and risks involved!

    1. Thank you. So many people buy into the myth that home ownership automatically equates financial stability. Unfortunately, as I and so many others have proven, that is not the case.

      Good luck with your homes! πŸ™‚

  5. Im sorry you had to go through this, its really unfortunate and there are countless others who experienced a similar hardship because of the bubble.

    Im so thankful I never got hit with this disaster of the real estate crash. I really didnt start buying most of my houses until afterwards but always kept that in thought for future reference. Which is why I make sure for any house that I purchase now, even if its my own primary, that there is plenty of cash flow in it to rent it out if it ever comes to the point where I cant afford it anymore.

    Ill just have renters pay for it for me. πŸ™‚

    1. A very smart approach, Alexander! πŸ˜‰

  6. Thanks, Erik. Best of luck with growing that equity! πŸ™‚

  7. Julie

    Wow, great article! I feel like I could have written this, as we went through a short sale for very similar reasons back in 2010. We bounced back and bought a new home that was within our budget almost two years ago. Very happy now, but the short sale experience really opened my eyes to one of the things you mentioned, which was the pressure to “keep up with the Joneses.” Learned that lesson! Thanks for sharing!

  8. Thanks, Julie! That’s great you were able to bounce back!

  9. EdD

    This was a really well written article about a very difficult circumstance. I, also. bought houses because I thought that I should since everyone else did. Based upon my experience, I have been able to save and invest much more as a renter vs a buyer. Its also nice not to have to worry about maintenance and putting a house up for sale when its time to move.

    1. Thanks, Ed. So many of us have fallen into that trap!

  10. Mrs. Picky Pincher

    Oh man, I’m so sorry this happened to you. πŸ™ Unfortunately many people learn about personal finance from the school of hard knocks.

    Mr. Picky Pincher and I (surprisingly) bought a house in a pretty good way. We paid down debt and saved for a year before buying a home. This allowed us to have a better debt-to-income ratio, a higher credit score, and a better interest rate. We saved about $16,000 in cash (after slashing expenses and increasing our income) to buy and renovate the house. We used an FHA loan, which meant we didn’t put 20% down on the house. It’s funny because in the long term an FHA was still better than conventional.

    We almost purchased a short sale, but were a bit put off by it. Some people can successfully buy short sales and benefit from it (my SIL is one of them), but overall they’re risky.

    1. Thanks. That’s great the FHA worked in your favor. I know for many it does not.

      Being on the selling end of a short sale, we plan to look into them when we buy again. Ours went relatively smoothly for our buyers.I know they all aren’t painless, but here’s hoping. πŸ™‚

  11. Yes, very true, Daniel. Thank you!

  12. Absolutely. Making decisions strictly with our emotions can lead us to making regrettable ones! Thanks, Jayson.

  13. Heather Neal

    We were in a similar situation in 2008. But we didn’t know about short sales and instead took a $15,000 loss on the sale of the house, which we put on credit cards. Yeah. That’s a thing you can do. It was terrible and took years to pay off. We’d paid off something like $45,000 in debt before, so we didn’t think the $15,000 seemed undoable. Perspective, right?! A short sale would have been a better financial option for us. But we survived it. Now we have a 2 bedroom condo, vastly reducing our maintenance expenses compared to owning a big home! So, we save more and are paying off debt much more rapidly now. I fully agree that “home” doesn’t have to be the massive building that all your friends have!

  14. Oh wow, I didn’t know that was a thing! Glad you were able to come out of that situation and get to a better place. Good luck to you as you continue to pay off your debt! πŸ™‚

  15. Michael

    Great post, Alaya! We sure learn a lot more from our mistakes than from our successes, don’t we? I used to have huge credit card debt long time ago. We paid it off and have been debt free for a good while now.

    1. Thanks so much Michael. Congrats on being debt-free!

  16. Dee Lafrenz

    I woke up one day and found my ex husband changed loan documents, he had 5 mortgages on my house, and his house was free and clear. Three of those loans were generated after we were divorced, or during the divorce. I filed bankruptcy, informed the judge what he did, and let the Federal Government go back on him for his illegal dealings. I did get released from my debt, but it took years. I had to be released from the debt because I never signed for them, the bank tried to forge my signature, or he did? But in the long run it gave me the opportunity to start over again. Moral, never give up, take it as a learning experience, and be wiser.

    1. Wow, Dee, what a crazy experience! Thank goodness you were able to be released from the debt and walk away having learned from it! Thanks for sharing. πŸ™‚

  17. Lindsey

    This is a really wonderful story. It takes guts to own up to your mistakes. We are waiting till we can truest afford to buy a home. But it is hard to wait. I know when we finally do well be glad we did wait.

    1. Thanks, Lindsey. Good luck on saving up for a house!!

  18. Renae’

    I know I am late on this post but I just found it. I’m sitting here feeling some type of way about my short sale. Everything happened so fast I don’t even understand what was done. I did a short sale because I was given an ARM and didn’t even know it. Its been 10 yrs and I am still upset. I paid off a lot of things on my credit so that I didn’t have to get an ARM but they gave me one anyway and with all the paper signing…I missed it. I feel like I was done so unfairly. And yes this happened in 2008. I bought the house in 2004. Through Beazer Homes. No some lady is living in the house that I had built, ground up and designed every detail. I’m still angry. Now I have to do this all over again.