What is a Short Sale

Short Sale Sign

What is a short sale?

Whether you are a buyer or a seller you might be wondering “what is a short sale”….  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.

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.  Make no mistake, your bank really does not want to foreclose on homes, even though it might seem that way.  The reason is that when they foreclose they lose more money, by a wide margin, than any other option available to them;  those option generally come down to loan modifications, deed in lieu of foreclosure and short sales.

Successfully completing a short sale, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency, especially when using Real Estate agents not trained to negotiate away the deficiency during the short sale process.  Many people think that a short sale is very much like a regular sale and when it comes to choosing a Realtor they select someone on that basis.  However, a short sale is more a negotiating of a debt settlement with a lender than it is a regular sale of real estate.  Any agent could list your house and find a buyer, but 90% of agents out there are not trained to negotiate a debt settlement with the short sale lender, so please be careful in choosing an agent who will truly be able to help.

For more information on what a deficiency is and how to avoid having one after a short sale please read my post Release of Lien & Liability on a Short Sale where I explain why it is so important not only for your Realtor to understand it, but also for you.