One of the fastest ways to cause yourself security clearance problems under Guideline “F” – the adjudicative criteria for financial issues – is to experience the misfortune of foreclosure.  As a result, many security clearance holders wisely choose to investigate their options when it appears they are in danger of losing their home.  One of those options is called a “short sale.”  If done correctly, a short sale can offer a borrower – particularly one with a security clearance – major benefits.  If this sounds like you, here are the basics you need to know.

What Is A Short Sale?

A residential short sale occurs when a home is listed for sale at a price less than the amount the seller (borrower) owes on the mortgage.  The borrower still owns the home and is listed in property records as the seller (unlike a foreclosure, where the lender now owns the property and is listed as the seller of record).  However, all proceeds from the sale of the property flow directly to the lender.  The seller-borrower effectively walks away with nothing.  But as you will see below, that’s actually not such a bad thing given the alternative.

Do I Need the Lender’s Permission?

Yes.  In any short sale, the lender must agree to a proposed purchase price prior to completing the short sale.  This is to protect the lender’s interest in the secured property and avoid sham transfers between relatives or friends.  Ultimately, many lenders will agree to a reasonable proposed purchase price to avoid the time, hassle, and expense of foreclosure.

The Crucial Step to Remember

The real value in a short sale for the seller-borrower is obtaining a “deficiency waiver” from the lender.  A deficiency waiver is an agreement from the lender that – in exchange for the short sale – the lender agrees not to sue the seller-borrower for the difference between the short sale price and the amount the seller-borrower owed to the lender.  This can be a significant amount of money, and a nasty surprise for un-expecting seller-borrowers years later when the lender starts attempting to collect.

To obtain a deficiency waiver, a seller-borrower needs simply to secure the lender’s written agreement to waive any deficiency upon the short sale.  Some lenders proactively volunteer this language, while others require the seller-borrower to negotiate for it.  In addition, some states actually bar lenders from seeking deficiency judgments after short sales as a matter of law.  When in doubt, seek the assistance of a competent real estate attorney.

I Already Completed a Short Sale But Didn’t Get a Deficiency Waiver. Am I Out of Luck?

Not necessarily.  Your first defense may be state law, which could bar deficiency judgments for public policy reasons. Alternatively, if your short sale was processed through a government agency (e.g., FHA or FHFA) the deficiency was automatically waived – although you’ll need to track down the documentation to prove this to security clearance adjudicators.  In addition, if the investor on your loan was Freddie Mac or Fannie Mae (which is often the case) then your deficiency was automatically waived according to the terms specified in the “Standard Short Sale” program announced by Freddie Mac last year.

How Does This Help My Clearance?

The critical issue here is the deficiency waiver.  Even in states that bar deficiency judgments as a matter of law, get an unambiguous written waiver agreement from the lender and keep that in a safe place along with a copy of the closing statement proving the completed short sale.  Then, if you ever receive any questions from security officials, you have satisfactory documentation at the ready and all your bases covered.

More broadly, entering into a short sale generally shows financial responsibility and a willingness to play by the rules. Those are crucial traits from an adjudicative standpoint and ones that will significantly suppress any questions about your ability and/or willingness to live within your means.


This article is intended as general information only and should not be construed as legal advice. Consult an attorney regarding your specific situation. 

Related News

Sean M. Bigley retired from the practice of law in 2023, after a decade representing clients in the security clearance process. He was previously an investigator for the Defense Counterintelligence and Security Agency (then-U.S. Office of Personnel Management) and served from 2020-2024 as a presidentially-appointed member of the National Security Education Board. For security clearance assistance, readers may wish to consider Attorney John Berry, who is available to advise and represent clients in all phases of the security clearance process, including pre-application counseling, denials, revocations, and appeals. Mr. Berry can be found at