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Short Sale Definition What is a short sale
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Short Sale Definition What is a short sale?
Learn what a short sale is and how a short sale helps a homeowner to avoid a foreclosure.

Short sale of your home emerges as something people may hear about but may not fully understand. This site endeavors to briefly explain the definition of a short sale, introduce some of the elements of a short sale and the short sale process as well as providing more detailed links so that homeowners may understand as much as they can about what is a short sale, if a short sale looks right for them and where to get help to complete a short sale.

Most homeowners in trouble with their mortgage, especially those who no longer desire to keep their property, explore the option of putting the house on the real estate market. Particularly in a down market (like the recent years of 2008-2009 and 1990-1991 and in fact for many cycles of the past and cycles of the future) homeowners calculate that the depressed real estate market leaves them in a position where they could not reap enough money from the sale of the house to pay off the mortgage. Unfortunately, many people stop at this point and give up, sometimes ending up in a foreclosure.

A short sale allows for all parties to benefit from the sale of the home for less than what might be owed on the mortgages. Why would the banks do this? Avoiding mortgage foreclosure stands out as a goal not only for the homeowner, but also for the bank. When a creditor takes possession of a property through a foreclosure they have to pay for its upkeep and taxes and try to sell it. When a bank tries to sell a foreclosed house the industry refers to it as distressed property and an institution might only expect to get $60,000 to $70,000 on a home allegedly worth $100,000. Add the carrying cost of holding the house for 6-12 months and the realtor fees on top of that and it becomes easy to see why the bank would rather get $80,000 now instead of netting $60,000 or less a year down the road.

From the homeowner point of view a short sale allows the people to avoid foreclosure which helps their credit score and makes it easier to rebuild credit as well as dealing with any potential mortgage deficiency. A part of any good short sale negotiation need to include eliminating or reducing the mortgage deficiency the homeowner might owe the bank. In certain cases even a short sale might fail, but the short sale remains a critical part of the homeowner’s end solution because almost any deed in lieu of foreclosure negotiation requires that the homeowner attempt a short sale for 60-90 days as a prerequisite.

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A successful short sale might work like this in our example above. The homeowner’s company moved to another state, they need to sell the house and move, but the home vale dropped to $100,000 while their mortgage balance sits at $125,000. The homeowner contacts a short sale negotiation professional or an attorney experienced in these matters, sometime bankruptcy lawyers do quite a bit of this, and they work with the bank to establish a price where the bank wants to list the property. A realtor selection takes place and the home goes on the market. In the mean time the homeowner lives there, and takes care of expenses. If they can, the bank certainly likes it if they continue their mortgage payments. An offer comes in at $85,000 and the bank says no. The offer gets raised to $90,000 and the bank accepts. Note the lender on the mortgage makes the decisions on listing price and sales prices, once you enter the short sale realm the homeowner no longer gets a say in those decisions.

Now comes the second part of the short sale, and in many ways the most critical. In most states the homeowner would still owe the difference between the mortgage and what the bank got. Imagining $5000 in realtor fees say the lender here got $85,000 net, that leaves a deficiency of $40,000 given a $125,000 mortgage. What a short sale professional or an attorney can do will depend on your own personal finances, but the goal for the homeowner remains to owe the bank as close to zero as possible after the short sale. In most cases an outcome of zero owed to the bank does indeed end up as the result.

In the final analysis the people avoided foreclosure, dodged the mortgage deficiency and by doing both of those might have prevented a bankruptcy filing as well. On the bank side they ended up with $85,000 right now as opposed to $60,000 six months or a year from now. Certainly none of the parties ended up as happy as if the home sold for $200,000, but in the current market that would have been a fantasy. For the reality of what they faced a short sale allowed everyone to achieve a better result than any other solution.

To learn more about a short sale and how it work including much more on the short sale process and who makes the best candidate for a short sale read the complete short sale FAQ. You might also want to get help with a getting short sale for your own home or talk to someone about avoiding foreclosure options where your might still be able to keep your home.

Proceed to Short Sale FAQ – Part I
What is a mortgage deficiency and how does it relate to a short sale.

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Link to the definition of a short sale. Learn what a short sale is and how a short sale helps a homeowner to avoid a foreclosure. Proceed to FAQs on understanding mortgage deficiency and the short sale process. See other options to stop foreclosure and short sale negotiation professionals. Link to understanding mortgage deficiency. To fully understand short sale one must first grasp mortgage deficiency. This FAQ answers homeowner's questions about mortgage deficiency in a foreclosure situation and continues to an FAQ on the short sale process and finding short sale help. Link to the sort sale process. Short sale FAQ with information on the short sale process to stop foreclosure from the concept of a short sale to finding a realtor, negotiating with the bank and leaving after the short sale closing. See if short sale fits to avoid your foreclosure.

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