What is a Short Sale
A short sale occurs when the proceeds of a real estate sale fall
short of the mortgage balance owed on the property. To facilitate a short
sale, the lender agrees to discount an outstanding loan balance, usually due to
an economic or financial hardship on the part of the mortgagor to allow a sale to
occur. Negotiations are usually accomplished through communication with a bank's
loss-mitigation department. The borrower sells the mortgaged property for less than
the outstanding balance of the loan, and gives the proceeds of the sale to the lender,
sometimes (but not always) in full satisfaction of the mortgage debt. The
lender must approve a proposed sale in advance for the sale to occur.
Circumstances influence the lender’s decisions to discount a loan balance.
These circumstances could include the current real estate market climate and the
individual borrower's financial situation.
A short sale typically is executed to prevent a foreclosure. Often, a bank
will agree to a short sale if they believe that it will result in a smaller financial
loss than going through the lengthy and expensive foreclosure process. For the home
owner, the advantages include the opportunity to salvage some of their credit standing
by avoiding a foreclosure on their credit history and at least partial control
of the monetary deficiency.