What is Short Sale?
A real estate Short Sale is when a Lender agrees to sell the home at a price that is less then what is owed on the property.
Borrowers who are facing foreclosure may ask the lender to accept a discounted payoff on their loan. This is called a "short sale" or "short payoff". It allows the borrower to avoid a foreclosure action, and may offer the lender an expedited and less costly resolution of the situation.
Historical trends tell us that the number of short sales has increased when changing markets soften home prices and leave homeowners with a higher mortgage interest rate or loan balance. For the consumer, negotiating a short sale with the lender may seem a daunting task, particularly at a stressful time when foreclosure looms. A short sale allows the borrower to maintain a better overall credit record than with a foreclosure. It also allows time for the homeowner to relocate on a more convenient timetable instead of facing eviction and possibly a deficiency judgment down the road. A short sale may also help the borrower avoid or minimize a tax liability, although it is important for the borrower to discuss the situation with a tax advisor to be sure of the long-term effect.
Most lenders have specific criteria to consider a short sale that relate to the borrower's ability to repay the debt. Some lenders will consider a short sale only when the property is distressed or requires extensive work or repairs. If the lender foreclosed on this type of property, it would have to pay for all the repairs necessary to sell the property. A short sale may represent a more cost-effective way to pay off the loan.