Do you still owe the difference after a VA short sale?
By James Sanson, REALTOR® · Updated October 2026
IMPORTANT NOTICE
heroSOLD is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan.
After a VA short sale, you do not owe the difference to VA on a loan closed in 1990 or later: 38 U.S.C. 3703(e) says you owe VA nothing for the loss unless there was fraud, misrepresentation, or bad faith, with two narrow exceptions. The lender's shortfall depends on your approval letter and Arizona law.
Do you owe VA anything after a VA short sale?
For a VA-backed loan closed after December 31, 1989, 38 U.S.C. 3703(e)(1) says the borrower who paid the funding fee (or was exempt from it) has no liability to VA for any loss resulting from default, except in the case of fraud, misrepresentation, or bad faith in obtaining the loan or in connection with the default. VA restated the practical effect in Circular 26-18-25: it no longer establishes debts against veterans on loans originated on or after January 1, 1990 when it pays a claim after a foreclosure, short sale, or deed-in-lieu.
Two exceptions are written into the statute at 3703(e)(2): the protection does not apply to a borrower who paid the funding fee under 38 U.S.C. 3729(b)(2)(I), the category for certain non-veteran assumers, or to a manufactured-home loan under 38 U.S.C. 3712. If your loan closed before 1990, VA may establish a debt; 38 U.S.C. 5302(b) then requires VA to waive it where collection would be against equity and good conscience, and the application must be made within one year after you receive the notice of indebtedness by certified mail.
Not owing VA is not the same as being made whole with VA. If VA paid a claim, the entitlement used on that loan stays charged until the claim is repaid; that is an eligibility consequence, not a debt, and it is explained on getting a VA loan after a short sale.
Do you owe the lender the shortfall?
That depends on your short sale approval letter and closing documents, not on VA's rules. The short sale regulation treats a holder's waiver of part of the debt as one component of the credit that has to equal or exceed the property's net value (38 CFR 36.4322(e)(1)(ii)), which means the holder can waive the shortfall as part of an approved short sale. Whether it does, and whether the waiver is a full release of the remaining balance, is set out in the short sale approval letter and the closing documents. Read them for a release of liability; if the language is not there, ask for it before closing.
State law also matters. Arizona's anti-deficiency statutes protect certain residential borrowers in certain circumstances, and whether they apply to your loan, your property, and a short sale rather than a foreclosure is a question for an Arizona attorney. heroSOLD does not give legal advice and will not tell you the statute covers you; a short consultation before you sign is worth more than any general statement.
Who can answer this for your file?
- Your servicer, for the approval letter, the net value figure, and whether the shortfall is waived in writing.
- A VA loan technician at 877-827-3702, for what VA's records show about a claim and your entitlement.
- Your installation legal assistance office (JAG), if you are on active duty or otherwise eligible, for a free review of the short sale documents and state deficiency questions.
- An Arizona real estate attorney, for a release-of-liability review and the anti-deficiency analysis on your specific facts.
The rules the sale must meet are on the VA short sale guidelines. The overview is on how a short sale works on a VA loan.
Frequently asked questions
Will VA come after me for the difference after a short sale?
For loans closed after December 31, 1989, 38 U.S.C. 3703(e) says you have no liability to VA for loss from default except in cases of fraud, misrepresentation, or bad faith. VA confirmed in Circular 26-18-25 that it does not establish such debts on loans originated on or after January 1, 1990.
Can the lender pursue a deficiency after a VA short sale?
VA's rules let the holder waive the shortfall as part of an approved short sale but do not require it. The approval letter and closing documents control, along with state law. Get the release in writing and have an attorney review it.
What if my VA loan closed before 1990?
VA may establish a debt. Under 38 U.S.C. 5302(b), VA must waive it where collection would be against equity and good conscience, and you must apply within one year of receiving the certified-mail notice.
Does no liability to VA mean my entitlement is restored?
No. If VA paid a claim, the entitlement used stays charged until the claim is repaid. That is an eligibility consequence, not a debt.
Where can I get a free legal review of my short sale documents?
Active-duty members and other eligible people can use the installation legal assistance office. Anyone can consult an Arizona real estate attorney; heroSOLD does not give legal advice.
Sources, read on September 26, 2026: 38 CFR 36.4322(e); VA Servicer Handbook M26-4, Chapter 5, sections 5.01, 5.08 and 5.10 (Change 13, June 1, 2026); 38 U.S.C. 3703(e); VA Circular 26-18-25 (October 30, 2018); VA Lender's Handbook, Pamphlet 26-7, Chapter 2 section 2.06 and Chapter 4 Topic 7. heroSOLD is not a lender, not a law firm, and not affiliated with the Department of Veterans Affairs. Rules change; confirm the current text with your servicer, a VA loan technician at 877-827-3702, or an attorney.