What is a Short Sale? Real Estate Basics

For owners who can no longer afford to keep mortgage payments current, there are alternatives to bankruptcy or foreclosure proceedings. One of those options is called a “short sale.”

Wikipedia defines it this way:

“A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property’s loan.^[1] It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency”

Most often, more than one bank holds a mortgage on the property and each bank has to approve the sale. Additionally, if the seller has mortgage insurance, the insurer’s approval will be needed to move the deal forward. With multiple parties required to approve the transaction, the short sale process can be long and frustrating, and comes with no guarantee of success. Also, even if your short sale offer is accepted, the banks will usually ask you to buy the home as-is and won’t pay for any repairs discovered by an inspection.

How are Short Sales Different Than Foreclosures?